What Is an Instant Loan? Explained

In America, personal loan balances reached a staggering $210 billion during 2022’s third quarter. Many people have recently taken out loans to help them overcome financial hardships.

But what if you need fast money and can’t spend days waiting for a personal loan? An instant loan is your ticket to quick cash when you’re in a pinch.

The following guide will explain everything you need to know about instant loans and their unique benefits.

What Is an Instant Loan?

Instant loans are short-term loans with high-interest rates and fees. There are multiple instant loan types and they’re all usually for small amounts.

One common type of instant loan is the payday loan or a “cash advance”. These loans don’t demand collateral and get you cash on the same day you need it. However, you must pay back the loan and high-interest fees by the following payday.
 
 Pawn shops offer secured instant loans called “pawn loans”. For collateral, a pawn shop holds an item of yours in exchange for a loan. The loan is for a lower amount than the item’s value. The pawnshop becomes the owner of your item if you don’t repay the loan.
 
 Pink slip loans are instant loans that require your vehicle’s title for collateral. You keep the car while repaying the loan on each due date. The lender becomes the owner of your vehicle if you don’t make your payments on time.

How to Get an Instant Loan

First, you’ll need to submit an instant loan application to a lender. Remember that the benefits of good credit don’t usually apply to instant loans, so it’s ok if your score is low.

Although, you’ll need to give the lender some of your personal information before getting a loan. You have to be at least 18 years old to apply and provide the lender with a valid form of ID. You’ll also need proof of your income and a bank account opened.

Next, you’ll write a postdated check or ACH authorization for your loan’s due date. The amount of the check includes what you’re borrowing and all of the interest. It’s important to note that online instant loan lenders often need ACH authorization.

Receiving Funds and Making Payments

You’ll receive your funds for the loan amount in a lump sum of cash from the lender you choose. Some online instant loan lenders offer direct deposit options if you’ve given them access to your bank account.
 
 You must repay the instant loan by the due date which is typically within 2 weeks or your next pay period. Keep in mind that due dates vary from lender to lender depending on the terms of your agreement.

You’ll get your postdated check back from the lender after repaying the loan. Some lenders offer rollover plans to your next paycheck if you can’t make your payment on time. However, some states charge an additional fee for instant loan rollovers.

Instant Loan Benefits

Most instant loan lenders tend to be available 24 hours every day of the week. They usually have options for applying online which makes them even more accessible. Some instant loans only take about 5 minutes for approval.

While instant loans do require personal information, it’s still far fewer requirements than other loan types. The requirements that instant loans have are mostly in place for your protection.

As mentioned before, instant loan lenders typically won’t consider your credit history. Keep in mind that you also can’t build your credit by paying off an instant loan.

Instant Loan Disadvantages

On average, instant loans have very high-interest rates of about 400% depending on the state. For reference, most personal loans only have interest rates between 4% to 36%. Most credit cards only charge between 12% to 30% interest.

Because instant loans can have high costs that build up quickly, many get labeled as “predatory loans”. That means that they have unfair terms and might end up trapping users in a debt cycle.

Every time you have to extend your loan via rollover, the lender adds new fees. This can add months or even years to your payments and put you further in debt. Lenders usually don’t check or care if applicants stand a chance at paying off the loan.

Payday lenders have access to your bank account and can make withdrawals whenever they want. So, if you don’t have enough money when they make a withdrawal, you might get overdraft fees and also hurt your credit.

The lenders can take sue you if you’ve missed enough payments. Going to court might result in garnished wages, prison time, or other severe outcomes.

Payday loans usually choose low-income and minority communities to target which makes it hard for them to escape poverty. In some areas, using payday loan lenders is the only way residents can make financial transactions.

When to Get an Instant Loan

A lot of borrowers use instant loans to cover common living expenses such as car payments, groceries, bills, and credit cards. However, you should only use instant loans in an emergency and not make them a habit.

If you have bad credit or no credit, these short-term loans might help you in certain situations. But remember the risks and keep in mind that they might make your credit score worse through banking overdrafts.

The biggest benefit of an instant loan is how fast you receive the funds. If you absolutely need same-day cash, you might consider a short-term loan. Just make sure you have the means to pay it back as soon as possible and take the extra fees into consideration.

Using Instant Loans

Now you know that an instant loan comes with a lot of risks and you must use them with caution. They might be your only options in some situations if you have a low credit score, but try to only use them as a last resort.

Check out our finance section for more helpful loan tips and other valuable information.