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Direct-deposit loans are offered by some online lenders who deposit the funds into your bank account soon after your application has been approved. These loans are often chosen by borrowers who need funds quickly, or those who may not have strong credit because of easier eligibility requirements.However, direct-deposit loans can come with high interest rates and fees. Read on to find out more about direct-deposit loans, as well as alternative loan options you may want to consider.
What Are Direct-Deposit Personal Loans?
A personal loan direct deposit is a same-day short-term loan for a small amount of money that gives you quick access to funds. Direct-deposit personal loans are easier to qualify for than other loan products, including for borrowers who don’t have good credit. But these loans charge more in interest and fees and can be an expensive way to borrow money. Direct-deposit loans are different from traditional personal loans. Used responsibly, standard personal loans aren’t bad. However, direct-deposit loans, sometimes also known as payday loans, pose a high-risk for borrowers.
How Do Direct-Deposit Personal Loans Work?
To apply for a direct-deposit loan, borrowers will need to complete a loan application, which is usually fast and easy because there aren’t many supporting documents required. Unlike the standard personal loan origination process, these loans typically don’t require a credit check.Upon approval, it’s likely that you will need to schedule your loan payment, which is usually just two weeks later. You might do this on the lender’s website, in which case, you will need to give the lender access to your bank account through an ACH (Automated Clearing House) authorization, or by writing a postdated check for the full loan amount plus interest. Once this is done, borrowers should receive the loan amount minus any fees in their bank account. With some lenders, this happens in just a matter of minutes.On the specified repayment date, you will need to ensure that you have enough money in your bank account to cover the loan. If you don’t, the lender is likely to charge you a penalty fee, which may increase the total cost of the loan by a significant amount. High interest rates and fees could be just some of the reasons to apply for a personal loan rather than a direct-deposit loan.
Can You Get a Direct-Deposit Personal Loan Online?
You can get direct-deposit loans from online lenders and complete the application process online. You can also typically get a direct-deposit loan in person from cash-advance locations.One of the personal loan tips to be aware of is that many traditional personal loans also give you your funds through direct deposit. These personal loans are not the same as a direct-deposit personal loan because they don’t charge extremely high interest rates. It’s important to understand the difference. Recommended: Average Personal Loan Interest Rate
How Long Does a Direct-Deposit Personal Loan Take to Process in Your Account?
It can vary, but some lenders may deposit the money in your account the same day or very soon thereafter. Online direct-deposit loans can go directly into your account as long as you have given the lender access to it.
Are There Multiple Types of Direct-Deposit Personal Loans?
There are several different types of direct-deposit personal loans. They all offer fast access to funds with minimal eligibility requirements. These are some of the different kinds:
Payday Loan
A payday loan is a type of direct-deposit personal loan that gives you money on the same day. These loans are small, typically no more than $500. They have short repayment terms and extremely high fees, with APRs (annual percentage rates) that may be 10 times higher than other lending products, such as personal loans. They are generally due in full on your next payday, which could be in two to four weeks.
Pawn Shop Loan
A pawn shop loan uses a valuable item you own, such as jewelry or electronics, as collateral to secure the loan. A pawn shop will typically offer you 25% to 60% of the resale value of the item as your loan amount. Pawn shop loans generally come with financing fees and repayment lengths of 30 to 60 days. If you’re unable to pay back the loan, the pawn shop keeps your item.
Cash-Advance Loan
A cash-advance loan is a small short-term loan that gives you quick access to money. You can get a cash-advance loan through a lender or with your credit card. However a cash advance can have very high interest rates and fees.
Deferred-Deposit/ Post-Dated Check Loan
With this type of direct-deposit personal loan, a borrower guarantees payment at a later date. This is typically done by writing a post-dated check for a date in the future when the loan is due. The amount you can borrow tends to be low, but the interest rate and fees are high. The lender can cash your check on the repayment date and if you don’t have enough in your account to cover the full amount, this generally results in even more fees.
Pros of Direct-Deposit Personal Loans
Easy to qualify for: Direct-deposit personal loan lenders often work with borrowers with low credit scores.
Fast cash: Many lenders are able to quickly deposit a loan amount into a borrower’s bank account, even on the same day
Quick and easy application: Borrowers are typically able to complete the application within minutes.
Cons of Direct-Deposit Personal Loans
High interest rates: Direct-deposit personal loans generally have much higher interest rates than standard personal loans. In some states, the interest could be as much as 644%. Even if you have a strong credit score, you can expect to pay much more for a direct-deposit loan than you would with a standard personal loan.
Fees if you can’t make the payment: The payment for direct-deposit personal loans may be automatic—meaning the lender takes it from your account on the due date. If you don’t have enough money in the bank to cover the full amount, the lender will likely charge you late-payment fees. In addition, your bank might charge you an overdraft fee.
Low loan amount: Personal loan direct deposits aren’t ideal if you need more than a small sum of money. You can often only borrow a portion of your next paycheck, and many states set borrowing caps on these loans. If you have a large emergency expense, such as a medical procedure you need to pay for, a direct deposit personal loan may not be suitable for your needs.
Short repayment period: Many personal loan direct deposits require full repayment in just two weeks. Because of this, a borrower could get caught in a cycle of debt after taking out a direct-deposit loan.
Getting a Direct-Deposit Personal Loan
Obtaining direct-deposit personal loans is generally quick and easy. But the consequences can be serious if you are unable to pay back the loan by the specified date. In that case, you will likely have to pay late payment fees on top of the already-high interest and fees on the loan, which can substantially increase your debt.
The Takeaway
A direct-deposit loan offers a simple application process with fast, same-day funding. While it can help borrowers who have an immediate financial need, this type of loan typically carries high risk because of excessively steep interest rates and fees, and a short repayment period. Borrowers may have trouble paying off these loans on time.Many standard personal loans also have same-day financing, along with lower interest rates and longer repayment terms, so borrowers may want to explore this option. Lantern by SoFi can help. In our online marketplace, you can compare interest rates for a personal loan from multiple lenders with a single application. This way, you can quickly and conveniently look for a loan that’s the best fit for your needs and financial situation.Find and compare personal loan options with Lantern.
Frequently Asked Questions
What is a direct-deposit loan?
Is it possible to get a direct-deposit personal loan?
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About the Author
Lauren Ward
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
