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.

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.

9 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

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 580, and there are no prepayment penalties if you decide to pay the loan off early.

Best Egg

If you have a credit score of at least 600, 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.

Lending Club

Lending Club 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.

LightStream

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. However, you could be eligible for a loan with a credit score of 660 or higher.

PenFed Credit Union

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.

Upgrade

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

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.

Bottom line

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.