What Is An Instant Loan? - Bankrate.com

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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free – so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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An instant loan can get you cash quickly— sometimes within the same day — even if you don’t have strong credit. Getting fast cash for unforeseen costs such as a car repair or medical bill can feel like a solution. However, instant loans put you on a slippery slope of repayment that you may not be able to sustain financially.
The adverse effects of instant loans are even more detrimental for low-income borrowers. According to California’s Department of Financial Protection & Innovation, nearly half (49 percent) of payday loan borrowers had an income of $30,000 or less in 2020. Twenty percent of payday loan borrowers earned $30,000 or less.
Instant loan products, which typically charge sky-high interest rates and fees, exacerbate the finances of borrowers who are already struggling to stay afloat. If you are considering an instant loan, think about what it will mean for you financially and weigh every option before signing on to the terms.
An instant loan is a short-term loan that’s typically for a small amount of money and comes with high interest rates and fees. Instant loans are available in a few varieties:
Regardless of which type of instant loan you’re considering or what a lender calls it, an instant loan is a high-risk borrowing option.
Payday loans are a common instant loan option, with 12 million adults in the U.S. using them every year. Instant loan amounts are usually around $500 or less. Interest on the loans is incredibly high, sometimes shown as a percentage or dollar amount for every $100 borrowed. For example, a 15 percent fee for every $100. Fees vary by state, and each state has its own fee limits.
If you’re considering this borrowing option, you’ll need to:
If you can’t repay the loan on time, some payday lenders offer a rollover to delay repayment for another pay period. Not all states allow rollovers, and this option costs another fee.
In most situations, instant loans aren’t a good idea and should be avoided if possible. According to the St. Louis Federal Reserve, the average payday loan interest rate is 391 percent for the first two weeks. It’s easy to not realize how much you’re paying in fees.
For example, paying an extra $60 fee later seems doable if it means getting $400 today. And don’t think the rollover feature that some lenders offer is a lifeline, either. In the same example, a rollover for another two-week payment extension might cost $60 on top of the $460 in principal and fees you already owe. Now, you’ll have paid $120 to borrow $400 over four weeks.
According to the Consumer Financial Protection Bureau, four out of five payday loan borrowers rollover or renew their loan within 14 days. If your budget was tight to begin with, it might be challenging to pay the loan off and tempting to initiate multiple rollovers until the fees balloon.
If your loan goes into default, debt collectors can report it to credit bureaus and your credit will suffer. The debt collectors can also sue you to recoup the outstanding funds. If the court rules in their favor, your wages might get garnished.
Before moving forward with an instant loan, consider if you’ve gone through all the alternatives below.
The best way to avoid using payday loans is to practice good financial habits. Make sure you have a budget in place that works for your income and expenses. Save ahead of time for big expenses that you know about, and try to set aside an emergency fund that you can use for unexpected large expenses. It’s a good idea to save an emergency fund that will cover your typical expenses for three months.
Instant loans aren’t an ideal go-to when a big expense surprises you. If you can, consider the alternatives before taking on unnecessary fees through a payday loan.
If you believe an instant loan is really your only recourse, read your state’s regulations for payday lending. States impose maximum loan amounts, fee and rollover restrictions and other requirements on payday lenders to discourage predatory lending practices.
To learn more about the rules in your state, you can reach out to your state banking regulator or attorney general.
Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.
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