Aiming to reduce the indebtedness of workers, withdrawals and civil servants, came the payday loan or payday loan. Do you know this form of lower interest loan? In this post, we will explain what payday loan is, when it should be used and how it works. In addition, let’s explore some precautions that should be taken before making this type of loan.
First, we need to understand the definition. Payday deductible credit is a credit in which the value of installments is automatically discounted. Thus, this amount is taken directly from the Payday – or, in the case of withdrawals, directly from the retirement income. This type of credit tends to have lower interest rates than others. This is because the state or the company provides an extra guarantee for the lending financial institution.
This type of loan has become very popular among Brazilians. For example, between January and May 2018, withdrawals and pensioners from the National Institute of Social Security (INSS) borrowed $ 5.9 billion in Payday-deductible loans, according to the Best Cent Bank. It is not difficult to understand this popularity. After all, other means to the same end, such as credit card, overdraft and personal credit, are about three times more expensive.
Who can apply for a payday loan?
To apply for payday loans, the person must have payable income and margin. This is:
- INSS retirees and pensioners
- civil servants (federal, state and municipal)
- military of the armed forces
- workers with a formal contract (from a private company).
As for the amount allowed, as determined by the INSS and the Best Cent Bank, the person interested in making the loan can commit up to 30% of the benefit amount with payday loans and 5% with the minimum portion of the Payday credit card.
There are specific rules for different professions that may apply for payday loans. For withdrawals, the payment period is usually 72 months and the INSS regulations, the interest rate is at most 2.08% per month. The maximum age for the loan is 80 years.
In the case of the civil servant, the debt repayment term tends to be up to 96 months. Regarding the interest rate, a maximum of 2.05% per month. With regard to the military, the contract time is the same as the servers, but the rate is from 1.50% per month.
In the private sector, deductible Payday is available to CLT-regulated employees or contractors. In this case, the average interest rate charged ranges from 1.40% to 3.50% per month. The deadline for payment depends on the bank used, and the trader must have a minimum signed wallet time. Importantly, companies are not required to offer the payday loan benefit. Therefore, the employee should seek information from the HR department before going to the bank. If the organization goes bankrupt or if the person is fired, the debt will be assumed by the borrower and he will be responsible for the transfer of the amount to the banks.
Civil servants who fall into the categories below with the Federal Government do not get this type of credit:
- Celetista (CLT);
- Temporary contract;
- Public employment;
- Special Framework QE / MRE;
- Requested and Unlinked;
How to choose between a personal loan, payday loans and financing?
Realizing that an extra amount is needed to earn some equity or balance their accounts, many are left in doubt among personal loans, payday loans or financing. Let’s clear up these doubts now!
First it is interesting to distinguish the loan from a financing. The main point of differentiation is that in financing, value is directed to a specific destination. Like car or property, for example. In the case of loans, the destination is not specified. As we have already mentioned, payday loans are a type of loan. This means that it is not for a specific good. Therefore, it is a promise to pay back the amount plus interest.
If you are looking to finance a property or renovate, explore the lines of credit offered by financial institutions. Run simulations with dealers, direct with builders or financial institutions.
But if you are determined to make a loan, remember that to get the Payday you have to meet the criteria we mentioned in the previous pages. The main difference between him and the person is that the Payday is directly deducted from the Payday, being linked to their employment or benefit of the INSS. The personal loan is simply borrowing, preferably from your financial institution, the money borrowed. In this case, you will have to prove your ability to pay the installments and deposit the amount monthly!
If you are able to apply for the Payday, this is probably the best option. After all, this modality presents a much lower risk to the financial institution and therefore has very competitive rates. But in the end, the best option for you will always be one that you are able to put the financial commitment on your monthly income.
Find Out What Total Cost Effective – CET
According to Best Cent Bank regulations, even before contracting the payday loan modality, the financial institution will inform the annual Total Effective Cost.
But what does that mean anyway? Total Effective Cost, as its name may already indicate, is the current cost of debt. That is, it takes into account everything the payment will encompass. To name a few: interest rate, taxes, fees and insurance. It is extremely important to take CET into account as it can make a considerable difference.
Knowing the value of this cost is critical! Not only to plan or pay off debt, but also because the CET increases over time. This usually occurs as early as the second installment due to fixed or rising costs (insurance and administration fee, to name a few). Unfortunately, some financial institutions report only nominal interest and CET at the start of financing. Therefore, pay attention and inform yourself about this increase.
Is it really worth choosing payday loans?
It has been said here that this is one of the cheapest lines of credit on the market. But keep in mind that this type of loan is a double-edged sword. It may be your best friend, but it can become the greatest enemy.
First of all, it is of utmost importance to exercise caution when hiring and some points need to be taken into consideration. Very important factors need to be considered. Such as: read the contract carefully, research the financial institution to be used and have a financial plan remembering that at least 30% of your income will be committed as long as the installments are deducted from the paycheck.
The truth is that payday loans can be very useful in the lives of Brazilian families. Home repairs or repairs, health emergencies, investments… are numerous situations that can lead you to apply for a loan. If you are going through any of them, know some advantages of Payday:
Interest rates: These are lower than most other credit lines available on the market.
Term: In general, financial institutions with payday loans offer longer payment terms.
Ease: The bureaucracy to borrow a payday loan is often low.
Speed: Once approved, the release of money into the account is quick and without any hassles.
Make a financial plan
For any type of loan, planning is required.
Before making a payday loan application you need to plan like any other loan. Here are some tips to help you accomplish this planning:
1. Find out how much of your income is left per month and how much you can afford to pay without compromising your quality of life. Committing to a loan suggests that you have more control and knowledge of your spending and your monthly budget.
2. Compare interest rates. You need to consider whether the amount received is consistent with the rate you pay monthly, as well as the terms required by the bank. Analyze if the rate paid is advantageous for the purpose of the credit;
3. Do not forget the real purpose of your loan. It will be your commitment until the credit expires. It is not possible to cancel, install, block or postpone the payment.