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When you need money fast, a same-day loan may seem like the solution to your problems.
Maybe you’ve lost your job, you’re facing a major car-repair bill or rent is due tomorrow. Whatever your urgent situation, a same-day loan can put cash in your hands when you need it most.
But that convenience typically comes with a high cost. While it’s possible to get a same-day loan, there are important short- and long-term consequences to consider before you look for one.
What is a same-day loan?
A same-day loan is pretty straightforward: It’s a loan option that, if approved, could give you money on the same day you apply for it. If you need cash quickly because of an emergency, this type of financing can be appealing. But the promise to receive your loan the same day is often marketing. While you could receive the funds the same day, you might not.
Just like a personal loan, though, if you’re approved for a same-day loan you may not receive your funds until the next business day. It could even take days to process and deposit the funds into your bank account. So while you may get the money you need sooner than later, it could still take longer than expected.
What are some types of same-day loans?
You have several options if you’re looking for a same-day loan. While the chance of getting money right away may help your immediate situation, it’s important to understand the fees and interest rates involved — and the long-term impact they can have on your finances.
Many same-day loans come with high interest and fees. Here are some types of costly same-day loans.
A payday loan is a short-term loan for a small amount of money that you typically repay on your next payday. Payday lenders probably won’t consider your credit scores or your ability to repay the loan, which can help you get approved even if you have rough credit. But it can come at a high price.
Payday loans come with fees and costs that can amount to APRs as high as almost 400%, according to the Consumer Financial Protection Bureau. And while some payday loans offer same-day cash with no credit check, this short-term access can cost you in the long run.
If you’re not able to repay the original loan on time, you may end up rolling the debt into a new payday loan. In fact, nearly a quarter of all new payday loans get reborrowed nine times or more, the CFPB says. And those rollovers can come with additional fees that drive up your payday debt even more.Understanding payday loans and your options
A title loan is another type of small-amount, high-interest loan that could give you funds on the same day you apply for it. With a title loan, you use your vehicle as collateral to back your loan. The lender takes your car title in exchange for a small loan. When you repay the loan, you’ll get your title back.
Like payday loans, title loans can be costly and come with high risks. Some title-loan companies will give you a loan even if you already have an auto loan on your vehicle.
According to the CFPB, the average title loan is around $700 and can come with an APR as high as a whopping 300%. More than 50% of the people taking out title loans become repeat borrowers, and 20% of title-loan borrowers lose their vehicles to the lender.
Pawn shop loans
Another way to get cash quickly is to take something valuable to a pawn shop. In exchange for the item, the shop gives you an agreed-upon amount of cash — which is usually less than what the item might actually be worth. If you repay the loan amount, plus fees, by the agreed-upon due date, you can get your valuables back. If you don’t repay the loan, the pawn shop can sell your item to recover its costs.
The interest on pawn shop loans can be expensive, with fees than can amount to very high APRs, like 240%. This high interest may make it difficult to repay the loan.Is a pawn shop loan a good idea for quick cash?
What are some alternatives to same-day loans?
While same-day loans can give you cash right when you need it, these loans typically benefit the lender far more than the borrower. Before you commit to a same-day loan, it’s a good idea to consider some alternatives.
Putting expenses on your credit card or taking out a cash advance may not be ideal, but it could still be less costly than a same-day loan.
The average credit card APR is currently around 15%. And if you take out a cash advance — using your credit card to access cash — you’ll likely end up having a higher APR (25% or more in many cases). But this still may be a less-costly alternative than same-day loans, which can come with triple-digit interest rates.
Family and friends
You may be hesitant to ask family or friends for emergency cash, but if you’re in a bind and know someone who could help you out, this is another option to consider. If a loved one gives you a loan, be sure you’re both clear on the interest and repayment terms. A loan from family or friends may help you repair your finances, but it’s important not to let the loan undermine the relationship.Family loans: What to know before you borrow or lend within the clan
Traditional personal loans
Another option is a traditional personal loan, which is a loan that offers a lump sum of money and is paid back in set installments over a fixed period of time. Depending on your credit and other factors, you may get approved for a reasonable rate. And if you’re approved, some lenders can fund the loan the same business day.
When reviewing offers from personal-loan lenders, be sure to compare APRs, origination fees and repayment terms. Taking out a small, traditional personal loan will almost always be more cost-effective than a payday loan, title loan or pawn shop loan.
Payday alternative loans
If you’re a member of a federal credit union, you may be able to apply for a payday alternative loan, which typically comes with much lower fees and APRs than a traditional payday loan.
You must be a member of the credit union offering the loan for at least a month in order to qualify. If you’re approved for a loan, the amount can range from $200 to $1,000.
Note that when applying for a payday alternative loan, you’ll likely need to demonstrate that you meet some basic financial qualifications, like disclosing why you’re applying for the loan or not having a recent bankruptcy.
When you’re facing an emergency expense, a loan option that markets same-day funding may seem like the fastest way to get the money you need. But that speed and ease can come with high costs, and most same-day loans are heavily weighted in the lender’s favor, not yours.
Before you take out a same-day loan, be sure to read the fine print, understand the loan terms and look at the overall cost of the loan. If you’re willing to shop around, you should be able to find a more affordable personal loan that can fund loans the same business days or within a few business days.
And if you absolutely can’t wait and have available credit on a credit card, a cash advance isn’t cheap but will almost certainly come with a lower interest rate than a same-day loan.