Six Alternatives To Direct Deposit Loans

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 deposit loans often come with very high interest rates, meaning the cost of borrowing is higher than 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 that allows you to receive funds directly in your bank account after approval. Lenders typically only need to verify the direct deposit of your paycheck for approval, which means you generally don’t have to worry about a credit check.

Aside from annual percentage rate (APRs) of over 100 or even 600 percent, the biggest danger of choosing payday loans is the two-week repayment term. If you can’t repay the entire balance plus the fee within that period, you may end up extending or taking out a new one. Many payday borrowers end up in a cycle of debt that makes their financial situation worse.

Fortunately, there are seven direct deposit loan alternatives that cost much less than payday loans and give you cash just as quickly, but with more time to pay them off.

The 6 best alternatives to payday direct deposit loans

1. Personal loans

A personal loan is a direct deposit loan option that typically gives you one to seven years to pay the money you borrow. Bad credit personal loan rates generally cap out at 35.99 percent. That’s far less than the triple-digit rates you’ll pay with a payday loan.

Funds can be directly deposited on the same day you apply with some lenders. You’ll need to borrow at least $1,000 in most cases, so keep that in mind if you decide to get a personal loan.

The Bankrate team has reviewed a number of personal loan lenders, including those with very flexible eligibility requirements and those that offer loan terms of seven years or longer. Keep in mind that the lowest interest rates go to excellent credit borrowers.

2. Payday alternative loans

Borrowers who don’t quite qualify for standard personal loans may have better luck with a payday alternative loan. This type of direct deposit loan still comes with triple-digit APRs, but they’re often less than what you’d pay for a payday loan.

The best part is that repayment terms are typically measured in months, not weeks. This removes the pressure of paying off the loan by your next payday and gives you more time to work out your finances.

These products often don’t require a minimum credit score and are approved based on your income and banking history, much like payday loans. Funds are usually delivered to your bank account within one business day of approval.

Most lenders that offer these types of loans don’t charge prepayment penalties, which means you can pay your high-rate balance off faster without an additional fee. Some of the payday alternative loans Bankrate has reviewed offer loans under $500, which makes them good for smaller emergency costs — especially if you can pay them off ahead of schedule.

3. Early payday apps

If you only need to borrow a small amount, there are a number of early payday apps you can use. These apps allow you to have a portion of your paycheck direct deposited before your next period. Some apps even allow you to borrow up to $750 in between paychecks, nearly three times more than the average payday lender allows.

No credit check is required for these products. Approval is based on proof of paychecks deposited into your bank account, just like a payday loan.

The advance is paid back when you get your paycheck, and some pay advance companies don’t charge a fee. However, you may need to pay extra for instant cash delivery or pay a subscription fee to participate. And, of course, these options mean part of your next paycheck is already spoken for.

4. Cash advance on your credit card

You may be able to take a cash advance from the available balance on one of your credit cards. Check the fine print on your credit card disclosures to find out how much your rate will be. It’s typically higher than the rate you pay for normal charges. Plus, interest starts accruing immediately, rather than after a grace period.

While this may be an easy way to get some extra cash, it could knock your credit scores if you don’t pay the balance off before your next billing cycle. Your credit utilization ratio measures how much of your available credit you’re using, and if it exceeds 30 percent it may impact your credit score.

5. Employer salary advances

Ask your employer if you can get an advance on your next paycheck. Check your company’s benefits, too. Many employers offer free financial counseling services for employees to help them manage their money.

6. Nonprofit, community and government assistance

You may be able to get help paying for the bare essentials like food and utilities through programs offered by local nonprofits or community and local governments. The programs are designed to provide assistance to people in dire financial situations such as a sudden loss of income due to job loss or other emergency situations.

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.

Pros

• You may be approved and receive funds the same day you apply.
• Approval doesn’t usually require a credit check.
• Funds are deposited directly to your bank account.

Cons

• Highest APRs of any loan type.
• You must repay the entire balance plus fees by your next paycheck.
• Can lead to costly debt rollovers that increase your debt load.

Pros and cons of alternatives to direct deposit loans

Personal loan vs. direct deposit loan

If you’re still trying to choose between a payday loan or a personal loan, seeing the features side by side may make the decision easier.

Bottom line

If you need money quickly, direct deposit loans may seem convenient. However, direct deposit payday loans often have high interest rates and short repayment terms on unaffordable debt.

Fortunately, there are better alternatives — such as personal loans — with lower rates and longer repayment terms. Consider all your options before you choose any type of financing. Look for assistance from non-profit organizations or government programs if you cannot afford essentials.