Direct deposit loans are aimed at borrowers with previous credit problems who have encountered financial difficulties. These debt instruments are typically deposited into your bank account on the same or next business day, making them a convenient option when you need quick cash.

Nevertheless, there are disadvantages to consider. Direct deposits often come with exorbitant interest rates, which means borrowing costs are much higher than other financing alternatives. Therefore, you should avoid these loans if possible.

What is an instant loan?

A direct deposit loan is a type of payday loan that is available for those who need quick money. Most lenders do not require a credit check, and you may be eligible for financing if you are at least 18 years old (21 in some states) and have a recent payslip. You must also reside in a state that allows payment loans.

The downside is that you’ll likely get a hefty interest rate — often as much as 400 percent — to offset the risk of default, and you’ll have to pay off the loan within two weeks or by your next payday. In addition, loan amounts are generally much lower than a traditional personal loan or other loan product. As a result, you should consider other options as they may be a much better fit for your financial situation.

Which types of credit are an alternative?

Instead of settling for a direct deposit loan when you’re in financial distress and need a quick buck, consider these alternatives:

• Private loan: Unlike direct deposit loans, personal loans have extended repayment terms — typically ranging from one to five or more years. You’re also likely to get a far lower interest rate than a direct deposit loan, even if you have a lower credit rating. The average interest rate on personal loans ranges from 10.3 percent to 12.5 percent for borrowers with excellent credit ratings and 17.8 percent to 19.9 percent for borrowers with average credit ratings. Consider an online lender that pays you money electronically in a business day or two.
• Home Loans: A home equity loan may take a little longer to be approved, but you can access a larger amount if you have a significant amount of equity in your home. Most lenders require good or excellent credit to qualify, and the interest rate is usually lower than a personal loan or credit card. Also, you may be eligible for a loan term of up to 30 years.
• Borrowing from family or friend: Even if you’re uncomfortable asking a relative or friend for a loan, you can save a fortune if they agree. Just make sure you come up with an agreement that works for both parties and get it in writing to avoid disagreements later. Most importantly, only borrow what you can comfortably afford to pay back on time.

9 alternative options with fast financing times

If you’re not sure where to look for a personal loan with quick funding times, these lenders are worth considering:

avant

Avant offers personal loans ranging from $2,000 to $35,000 and you can get money in as little as one business day. Loans are available to borrowers with a credit score as low as 580, and there are no prepayment penalties if you choose to repay the loan early.

best egg

If you have a credit score of at least 700, a Best Egg personal loan could be a viable alternative. Loans range from $2,000 to $50,000, and next-day financing is available.

loan club

Lending Club is another online lender with quick funding times, typically within two days. You can borrow up to $40,000 and the minimum credit rating requirement is 600 to be considered for a loan. Joint applicants are also welcome to apply.

Luminous flux

Same day personal loan financing is available through LightStream. It also offers some of the lowest interest rates in the industry for borrowers with solid credit scores. However, you might be eligible for a loan with a credit score of 660 or higher.

PenFed Credit Union

PenFed Credit Union is profitable when you want to borrow a small amount or apply with a fellow borrower. Most loans are available within a business day or two of approval and there are no processing fees.

Update

This online lender offers personal loans ranging from $1,000 to $50,000 at competitive rates. The upgrade doesn’t disclose minimum credit or income requirements, but if approved, you could have the money in your account in a day.

upstart

Upstart could also be a good fit if you have a lower credit score. While you could get an APR of up to 35.99 percent, it’s far lower than what you’ll pay with a direct deposit loan. You could also qualify for next business day financing.

bottom line

Direct deposit loans are a convenient option when you need cash fast. However, they should only be used as a last resort, as they often have high interest rates and are payable in a short time.

Instead, consider a personal loan from the recommendations above to meet your short-term financing needs. Many offer online pre-qualification so you can assess your eligibility for a loan and view potential interest rates.