For a salary-backed loan, the agreed instalment is directly deducted from the salary (or pension) and paid to the bank that granted the loan every month. This process is managed by the employer for employees or the pension office for pensioners. It ensures a seamless payment process and minimizes the risk of missed payments. In contrast, with personal loans, including salary loan online options, the instalment must be repaid directly to the bank or financial institution by the individual who requested the loan.
This can be done in an agreed-upon manner, such as through a direct debit from a current account or by using a postal bill. This method offers more flexibility but requires the borrower to be diligent in managing their payments.
How long does allocation take?
One of the significant advantages of a salary-backed loan is the speed with which funds can be accessed. Typically, you can receive the loan amount within 10 to 15 days. This makes it an attractive option for those in need of quick financial assistance.
What does the insurance connected to the salary-backed loan cover?
Given that the salary-backed loan is closely tied to the customer’s regular income, it includes an insurance component designed to protect both the borrower and the lender. This insurance covers two main risks:
- Life risk (applicable to employees and pensioners): This coverage ensures that, in the unfortunate event of the borrower’s death before the loan’s natural expiry date, the outstanding loan is not required to be repaid to Capitalfin by the customer’s heirs. The insurance company handles the settlement, relieving the heirs of any financial obligation related to the loan.
- Employment risk (applicable only to employees): This coverage protects against the possibility of non-payment of the loan by the borrower if the employment relationship with their employer ends permanently. The policy ensures that any part of the remaining debt not covered by severance pay at the time of employment termination is settled. If the insurance company has to indemnify for this risk, it retains the right to seek repayment from the customer for the amount paid.
Why is the salary-backed loan worth it?
The structure of a salary-backed loan includes a safeguard that prevents the monthly instalment from exceeding one-fifth of the borrower’s salary or pension. This limit helps avoid excessive indebtedness and ensures that the borrower maintains a good level of spending capacity even while repaying the loan.
Capitalfin experts recommend that customers thoroughly assess and declare their financial commitments and expenses. This evaluation enables the consultant to provide personalized advice and agree on a manageable installment plan that aligns with the customer’s financial situation. This thoughtful approach helps promote financial health and stability while utilizing the benefits of a salary-backed loan.
Conclusion
In conclusion, salary-backed loans present a compelling option for individuals seeking accessible and manageable financial support. With the convenience of automatic repayments and built-in insurance protections, borrowers can secure funds swiftly while minimizing the risks associated with missed payments.
By adhering to responsible borrowing practices and being mindful of their financial capabilities, customers can enjoy the benefits of these loans without compromising their financial stability. Ultimately, salary-backed loans can serve as an effective tool for achieving financial goals or addressing urgent needs, provided they are approached with careful consideration and planning.
