Advantages and disadvantages of payroll loans

Advantages and disadvantages of payroll loans

You already know that payroll loans are an attractive form of credit for some groups. We've discussed this here on the Geniuzz content hub. 

But have you ever stopped to consider the advantages and disadvantages of this product? After all, it's crucial to understand the details before making any financial decisions.

To help you with this, we've prepared a short list of the positive and negative aspects of this type of loan, which is increasingly popular in Brazil.

Reminder: what exactly is a payroll loan?

A payroll loan is a type of credit in which payment installments are deducted directly from the borrower's salary, retirement or benefit. 

Thus, the bank has a lower risk of delay and default, which makes it easier for the consumer to access credit, the release of larger amounts within the permitted margin, lower interest rates and a greater number of installments. 

Advantages

#1 Freedom to use money

The amount released through the loan can be used by you however you wish or need, without the need for justification or proof. With this option, you don't need to specify where the money will be used: whether to pay off another debt, buy an asset, go on a trip, or start a business. 

#2 Option to pay off a more expensive debt

Because the interest rates on a payroll loan are lower, it can be a great option to pay off more expensive debts. This way, a payroll loan becomes a tool to unify your debts, organize your financial life, and get out of the red. 

#3 Helps clear the name

Another very positive feature of this product is that it can be used by people with bad credit (as long as they meet the necessary requirements). This way, the person with a bad credit history can use the amount or part of it to pay off this debt and regain a positive credit history. 

#4 Clarity regarding payment 

With a payroll loan, you have a salary limit to use for the installments. Called the assignable margin, this limit prevents you from committing a large percentage of your salary or benefits to the loan repayment. The margin varies depending on the applicant's professional category, but is generally around 30%.

Disadvantages

#1 It is restricted to some categories

Not everyone has access to this product. Payroll loans are intended for people with a proven fixed income and who are affiliated with a public (or private, in some cases) agency with an agreement with the company providing the loan. 

#2 Payroll discount

This is both an advantage and a disadvantage. On the one hand, it makes repayment easier, because with direct payroll deductions, you don't have to worry about dates or bills. On the other hand, those who take out a payroll loan must plan to have that amount debited every month, which requires carefully evaluating whether the installment will fit within their budget. 

Did you like the information?

Now that you're ready to find out if a payroll loan is the best option for your needs, learn about bxblue. Founded with the purpose of offering freedom of comparison and choice to payroll loan customers, bxblue has been operating its digital platform since 2017, acting as a banking correspondent to facilitate the loan process.