What is a next-day loan?

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In a Nutshell

You won’t have to look far to find a next-day loan — but it may come with steep fees. With a little legwork, you may be able to find cheaper options. Learn more about next-day loans and the best alternatives to consider.

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Next-day loans may seem like a solution when you need money fast. But with high fees and short terms, they can become debt traps.

If you’re dealing with a financial emergency, you probably need cash immediately — you can’t just ignore things like say a major car repair or late utility bill. Next-day loans — which are certain types of loans marketed as being available the next day — are a way to get money into your bank account quickly, though sometimes at a price of high fees for the convenience.

As urgent as your situation may be, it’s important to weigh the pros and cons, as well as alternatives, before applying. Here’s what you need to know before you apply.

What is a next-day loan?

Next-day loans are marketed to be exactly what they sound like — many lenders promise that you can apply, get an answer, and receive money by the next day if approved. When you need money fast, that can sound attractive.

So who offers next-day loans? Well, payday or title loan lenders may market their products as “next-day loans,” commonly with high fees and short payoff terms. And some lenders offer personal loans that are funded as soon as the next day — though these are less common. And if you see promises of “same-day loans,” just be aware that the term often means funding the next business day.

Here’s an overview of the types of loans that may promise next-day funding.

Payday loans and payday cash advances

Payday loans and payday advances are often $500 or less. You typically have to pay them back by your next paycheck, with a due date usually within two to four weeks. Fees can range from $10 to $30 for every $100 borrowed. Paying a $15 fee for every $100 borrowed equates to an annual percentage rate, or APR, of almost 400% for a two-week loan. The biggest pro is quick access to cash, but the additional fees and short repayment term can make it difficult to pay off.

You’ll find a number of online payday lenders that say they can send your funds by the next business day.

Title loans

Title loans are also short-term loans for smaller amounts. To qualify, you hand over your vehicle’s title. You’ll also pay a monthly fee, which can sometimes be around 25% of the amount you borrow. Depending on how much you borrow and how long the loan term is, your fee could equal an APR up to 300%.

If you don’t pay back the loan as agreed, the lender may repossess your vehicle. So, as with payday loans and payday cash advances, you can access money in a pinch — but you could also lose your vehicle, which is a big risk.

Personal loans

Many personal loans have a fixed repayment term. And depending on where you live, you may be able to borrow larger amounts than with payday loans, cash advances or title loans. Terms vary by lender but can range from 12 months to seven years.

Personal loans usually have lower APRs than payday loans, payday advances and title loans, which is one of their major selling points. But you also need to factor in any origination fees, which are usually around 1% to 8% of your loan, to get a good idea of the total cost.

If you need cash fast, some online lenders and large financial institutions typically won’t get you the money as quickly as one business day — even with an online application.

What are some next-day loan alternatives?

Quick loans may seem attractive, but high fees can make them hard to pay off. Luckily, you do have other options. Here are some alternatives to next-day loans.

  • Apply for a personal loan with a longer funding timeline: Traditional personal loans offer a lump sum with the chance to pay it off in monthly installments. Some lenders can approve and deposit the money within a few days.
  • Consider payday alternative loans: If you’re a member of a federal credit union, you may want to apply for a payday alternative loan. The terms are typically one to six months and loan amounts range from around $200 to $1,000. Application fees are $20 or less.
  • Use your existing credit cards: With credit card interest rates averaging around 15%, according to the Federal Reserve, your existing card may be a cheaper alternative to payday loans.
  • Borrow money from family or friends: It’s probably not fun to ask your friends for money, but it may be worth considering. If you decide to go this route, put terms in writing to avoid disagreements later.
  • Look for local assistance: It’s possible there are local resources you haven’t explored yet. Your company may have a financial assistance program. Or you can look for local nonprofits that offer low-cost cash advances or emergency credit.

What’s next?

When you need an emergency loan, next-day loans are one option. But before signing the dotted line, be sure to read the terms — you should know exactly what you’re getting into. For instance, military service members may have added protections like interest rate caps and limits on what lenders can charge.

Make note of upfront fees and what happens if you can’t repay the loan. You should see if a rollover or renewal would be possible, if you need it, and how much it costs. If you can’t pay off the loan, and it’s too much to tackle on your own, consider working with a credit counselor. You can also contact a legal aid attorney to see what your options are.

About the author: Kate Dore is a Nashville-based personal finance writer and Candidate for CERTIFIED FINANCIAL PLANNER<s… Read more.