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About 12-Month Loans

A 12-month loan is a short-term unsecured loan which can be paid back in a period of 1 year. Already a popular concept in the Western countries, Indians are also warming up to 12-month loans. Also known as payday loans, this is a kind of personal loan which is disbursed against your paycheck. The amount of EMI on these loans also gets directly debited from your salary account. If you have immediate cash need for travel, education fees or medical emergencies, you can opt for a 12-month loan. There is no collateral required for these loans and they are disbursed in a day.

12-Month Loans
12 Month Loans

What are the features of 12-month loans?

  • These loans can be availed in a hassle-free manner online.
  • The maximum tenure of these loans is 1 year.
  • These loans are short-term and due whenever you receive your next salary
  • The disbursal of these loans is very quick. You may even receive the money the same day you applied for the loan.
  • Credit history is not a criterion for 12-month loans
  • Payday loans for 12-month loans are characterized by a low quantum of loans and high-interest rates
  • The eligibility criteria of these loans require you to be above 18 years of age with a regular source of income.

What are the benefits of 12-month loans?

  • 12-month loans or Payday loans addresses the immediate need of cash for borrowers. It has a number of benefits. Some of these are:
  • The application process of these loans is hassle-free. You can apply online directly then there is minimal documentation required.
  • You can apply for this loan even if you have a low credit score. The major criteria for this loan are that you have a regular source of income.
  • Unlike a car loan and home loan, there is no requirement of collateral for these kinds of loan.
  • You can get money in your account immediately when you have an emergency requirement of cash because the disbursal time of these loans is as low as 1 day.
  • The flexibility in repayment of these payday loans. You can repay these loans via direct debit from your salary account, post-dated cheques or ECS facility.

What is the interest rate and charges for a 12-month loan in India?

These are extremely short-term loans, hence the interest rate for these loans is very high, sometimes as high a 5%-10% per month which means more than 100% p.a. However, if you are financially disciplined and repay the loans on time, the payday loans are a great option for you to address your immediate cash requirements. The interest rates for 12-month loans may vary across different lenders, hence you need to do a proper check and scrutiny before applying for a loan from any of the lenders. There may also be a nominal amount of processing fee or other charges that may be charged by a few lenders.

What is the process for disbursal of the 12-month loan?

You need to apply for a 12-month loan to your lender either by visiting their office or online. Usually, the loan is disbursed within a day. You can opt for an easy way of repayment such as direct debit from their salary account, ECS or through post-dated cheques.

Usually, institutional lenders in India are not comfortable with 12-month loans. The ones who disburse these loans are private lenders. Though it is a very prominent concept in countries like the US and the UK, big Indian lenders are little wary of these loans due to the risk quotient involved. Since these loans carry a high rate of interest, it is recommended that you opt for these loans when it is absolutely necessary and there is no other option left to explore. If you fail to repay the loan on time, you may have to pay double the amount of loan because of the high-interest component.

What is the eligibility criteria for Payday loans?

  • You should be either a salaried employee or self-employed professional. Some lenders only prefer salaried individuals for this loan.
  • You must meet the monthly income criteria as set by the lender. This amount varies across cities in India because of the difference in the cost of living. The requirement of a monthly salary is more in Tier I cities than in Tier II cities.
  • You should be aged between 21 years to 60 years. This criterion differs from lender to lender.
  • For salaried employees, you must have a work experience of minimum 2 years, out of which 1 year must be with the current employer.

What is the difference between a usual personal loan and a payday loan?

  • Credit history criteria :

    For availing personal loans, it is mandatory to have a good credit history. This is one of the primary criteria for loan approval. Your credit score is assessed by the loan officer and he decides whether to sanction the loan or not. If your credit score is below the permissible limit, it indicates you may not have managed your debt well in the past and there are chances you may default of this loan as well.

    On the other hand, the 12-month loan, is an instant personal loan which doesn’t look at your credit worthiness because the amount is repaid from your current salary. In these cases, even if you have a bad credit score, you can get the loan.

  • Rate of Interest :

    Personal loans have a rate of interest in the range of 12% to 25%, while the 12-month loan has interest rates as high as 100% p.a. Since the payday loan is an unsecured short-term loan, it has a high rate of interest. Another reason for high-interest rates is the absence of creditworthiness as a criterion. Hence, we recommend taking a limited amount as a 12-month loan else it will be very difficult to repay the huge accumulated debt.

  • Loan Duration :

    The personal loan is sanctioned for a period ranging from 12 months to 60 months. This makes it easier for the borrowers to repay the money as the tenure is spread out. The 12-month loan, as the name suggests, is a loan which has to be repaid over a period of one year.

Frequently Asked Questions: 12-Month Loans

1. What is a 12-month Loan?

A 12-month loan is an unsecured personal loan which needs to be repaid within a span of 12 months. The quantum of this loan is small and the rate of interest is higher than that of regular personal loans. You can avail this loan when you have urgent cash requirement. The application and approval of these loans are very quick.

2. Can I avail a 12-month loan if I have a bad credit history?

As these loans are short-term and the repayment hugely depends on your current monthly salary. Hence, creditworthiness is not a criterion when approving this loan and you can apply for the loan even if you have a bad credit score.

3. Who offers 12-month loans in India?

12-month loans in India are offered by private lenders and not institutional banks. You need to look at the terms and conditions of the loan when you zero in on any particular lender.

4. Who can apply for a 12-month loan?

Every person who is in the age group of 21-62 years is eligible to apply for the 12-month loan be it a salaried individual or a self-employed professional. You must also have a work experience of a minimum of two years to be eligible as a borrower.

5. When should I apply for a 12-month loan?

You can apply for a 12-month loan if you have requirement of instant cash. However, due to the high rate of interest, it is advisable to use this option only as a last resort. You also need to ensure that you take a limited sum of money as a Payday loan.

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