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When you’re in a financial pinch, an instant loan may sound like just what you need.
While some lenders may use the flashy name “instant loan,” a lot of these loans are actually cash advances or payday loans, which are loaded with lousy terms and still have eligibility requirements. What’s more, even if approved you probably won’t get your cash instantly.
If you’re considering an instant loan, here are seven things you should know first.
What you should know about instant loans
1. How instant loans work
Typically, you can either fill out an online application or in person. The application will include the amount you want to borrow and the repayment period. You’ll also need to supply personal information, depending on the lender, like your income and debts, Social Security number, bank account information and email address.
The lender usually promises to respond within minutes and deposit funds into your bank account if you’re approved. But even if you are approved, in some cases it may take a business day or two — or even longer — to receive the funds.
2. They may not be instant
While the loan application process may be quicker in person, it usually takes time — between a few hours to a few days — for a lender to make a decision about an online application and deposit the funds into your bank account if approved.
For example, if you submit an application after a certain time of day, you might not get the funds until the next business day. You might end up waiting even longer if the lender needs more information from you.
3. You may pay a very high interest rate
Many loans that are marketed as “instant loans” are actually cash advances or payday loans, which are notorious for coming with fees that equate to sky-high APRs. According to the Consumer Financial Protection Bureau, payday loan lenders typically charge fees of around $15 for every $100 loaned, depending on the loan terms and the laws in your state.
This equates to an APR of almost 400% for a two-week loan. Other instant loans may charge even higher fees, with equivalent APRs of around 700% to 900%.
4. They’re usually small loans
This isn’t the type of loan you take out if you want to fund a major home improvement project. The amount you can borrow is usually low, around several hundred dollars, because these are generally seen as emergency loans.
5. You may have a short loan term
Short loan terms are another hallmark of payday loans. You might have to pay off your loan as soon as your next payday, or within one to two weeks. This doesn’t give you a lot of time to get the money together for repayment.
6. You may be approved with bad credit
Instant loans are often attractive to people with less-than-perfect credit because many of these lenders don’t check your credit reports or credit scores. That may seem appealing, but these loans won’t help you build credit if the lender doesn’t report your payment history to the three main credit bureaus.
7. Some companies may not lend in your state
That’s because some states have prohibited payday loans. And in other states, payday lenders have decided it’s not worth it to do business there because interest rates and fees are regulated. If you visit a website that advertises instant loans, you can usually search for a rate quote using your location.
What are my alternatives?
Because instant loans have high interest rates and short terms, try to use them only as a last resort. You may be better off finding an alternative. Here are some other options to consider.
- A personal loan for bad credit — Some lenders specialize in personal loans for people who don’t have great credit. Personal loans may also be a good option if you need more than a few hundred dollars to tide you over.
- A payday alternative loan — These small loans are offered at federal credit unions and range from $200 to $1,000. You’ll have to be a credit union member for at least a month to apply for one. But your loan application fee won’t exceed $20.
- A credit card cash advance — If you already have a credit card, you may be able to take out a loan against your available balance. But you’ll want to check your card’s terms: A cash advance might have a higher APR than your standard purchase APR, and the credit card issuer may charge a processing fee.
- A nonprofit credit counseling agency — A credit counselor may help you find a long-term financial solution for your money troubles, like creating a budget or entering a debt-management plan. For any of these options, make sure to ask about the repayment plan and find out if there are any costs involved, like setup or monthly fees.