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Direct deposit loans cater to borrowers with past credit issues experiencing financial hardship. These debt products are typically deposited into your bank account the same or next business day, making them a convenient option if you need fast cash.
Still, there are drawbacks to consider. Direct deposits often come with exorbitant interest rates, meaning the cost of borrowing is much higher than other funding alternatives. So, you should avoid these loans if possible.
What is a direct deposit loan?
A direct deposit loan is a type of payday loan readily available to those needing fast cash. Most lenders don’t require a credit check, and you could be eligible for funding if you’re at least 18 years of age (21 in some states) and can provide a recent pay stub. You must also reside in a state that permits payment lending.
The downside is you’ll likely be assessed a steep interest rate – often up to 400 percent – instead to offset the risk of default and have to repay the loan within two weeks or by your next payday. Furthermore, loan amounts are generally much lower than you’d qualify for with a traditional personal loan or other debt product. Consequently, you should explore other options as they could be a much better fit for your financial situation.
Pros and cons of direct deposit loans
Direct deposit loans come with benefits and drawbacks worth considering before deciding if they’re a good fit for you.
- You can get approved and receive funds as soon as the same day.
- Loans are unsecured and don’t require collateral to get approved.
- Most lenders do not require a hard credit check.
- You’ll pay steep fees to take out a loan.
- Loan rollovers are costly and can lead to an increased debt load.
- The repayment period is brief compared to personal loans.
Personal loan vs. direct deposit loan
Direct deposit loans are smaller than personal loans and come with steeper rates. Both can be funded rather quickly, but you can borrow more with a personal loan. Furthermore, you’ll generally need good or excellent credit to secure a personal loan, but direct deposit loans are easily accessible even if you have bad credit.
|Direct deposit loan||Personal loan|
|Rates||Up to 650%||Up to 35.99%|
|Loan amount||Up to $500||Up to $100,000|
|Loan term||On your next payday or two weeks||1 to 5 years|
|Time to funds||As soon as the same day||As soon as the same day|
|Credit score||No minimum credit score requirement with most lenders||Good or excellent credit is preferred, but some lenders offer loans to credit-challenged borrowers|
How to get a personal loan
If you’d prefer to explore personal loans before settling for a direct deposit loan, here’s how to move forward:
- Use a personal loan calculator to determine how much you can comfortably afford to borrow.
- Explore lenders offering personal loans with fast funding times.
- Check your credit score so you’ll know where you stand and which lenders could be a good fit based on their eligibility guidelines.
- Get pre-approved with at least three lenders to view potential loan offers without impacting your credit score.
- Choose the best fit and submit a formal application.
- Provide the requested documents the lender needs to confirm your identity, employment and income.
- Consider bringing a co-signer on board to boost your approval odds if it’s allowed by the lenders you’re considering.
- Sign the loan documents and receive the funds you need.
What kinds of loans are an alternative?
Instead of settling for a direct deposit loan if you’re in a financial bind and need quick cash, consider these alternatives:
- Personal loan: Unlike direct deposit loans, personal loans come with extended repayment periods – typically between one and five or more years. You’ll also likely get a far lower interest rate than a direct deposit loan, even if you have a lower credit score. The average interest rate on personal loans range from 10.3 percent to 12.5 percent for borrowers with excellent credit scores, and 17.8 percent to 19.9 percent for borrowers with average credit scores. Consider an online lender as many disburse funds to you electronically within one or two business days.
- Home equity loan: It could take a bit longer to get approved for a home equity loan, but you’ll be able to access a larger amount if you have a substantial amount of equity built up in your home. Most lenders require a good or excellent credit score to qualify, and the interest rate is usually lower than what you’d get with a personal loan or credit card. Plus, you may be eligible for a loan term of up to 30 years.
- Loan from family or friend: Even if you’re uncomfortable asking a relative or friend for a loan, you could save a fortune if they agree. Just be sure to enter into an arrangement that works for both parties and put it in writing to avoid disagreements later on. Most importantly, only borrow what you can comfortably afford to repay in a timely manner.
7 Alternative options with fast funding times
If you aren’t sure where to look for a personal loan with fast funding times, these lenders are worth considering:
Avant offers personal loans between $2,000 and $35,000, and you could receive funds as soon as one business day. Loans are available to borrowers with credit scores as low as 550, and there are no prepayment penalties if you decide to pay the loan off early.
If you have a credit score of at least 640, a personal loan from Best Egg could be a viable alternative. Loans range from $2,000 to $50,000, and next-day funding is available.
LendingClub is another online lender with fast funding times, typically within two days. You can borrow up to $40,000, and the lender generally serves consumers in the good credit range. Joint applicants are also welcome to apply.
Same-day funding on personal loans is available through LightStream. It also features some of the lowest interest rates in the industry for borrowers with solid credit scores.
PenFed Credit Union is viable if you’re looking to borrow a small amount or apply with a co-borrower. Most loans are available in one or two business days following approval, and there are no origination fees. However, you’ll need to join the credit union to apply for a loan.
This online lender features personal loans between $1,000 and $50,000 with competitive rates. Upgrade does not disclose a minimum credit score or income requirement, but if approved, you could have the funds in your account within one day.
Upstart could also be a good fit if you have a lower credit score. While you could receive an APR of up to 35.99 percent, it’s far lower than what you’ll pay with a direct deposit loan. Plus, you could qualify for next-business-day funding.
Direct deposit loans are a convenient option if you need fast cash. However, they should only be used as a last resort as they often come with steep interest rates and are payable in a short period.
Instead, consider a personal loan from the recommendations above to meet your short-term funding needs. Many offer online prequalification so you can gauge your eligibility for a loan and view potential rates.