What Is a Same-Day Loan?

FT Contributor
A closeup of someone's hands handling money.

When an unexpected bill arises, it’s understandable to get overwhelmed. You may need cash to fix the problem right away and could be considering a same-day loan. While many loans can be accessed quickly, a same-day loan is a short-term loan that you can access the same day you apply for it through a loan provider. 

This type of loan is ideal for people who will have money in the future, but they need to access it right away. For instance, if your furnace breaks, but you won’t get paid for two more weeks, you can opt for a same-day loan to fix it. 

Although same-day loans seem convenient, you can easily fall into debt if you borrow more than you can repay. It’s important to understand your personal budget and your financial goals before you take out the same day loan.   

Table of Contents

Types of Same-Day Loans

Even though various same-day loans operate with the same general principles, you should be aware of the different aspects of each type of same-day loan. These aspects include:

Knowing the difference between the types of same-day loans can help you decide which loan is right for you. 

Payday Loan

A payday loan is a short-term unsecured loan that must be repaid by your next payday, generally a two-week timespan. The lender extends a high-interest credit, ranging from $500 to $1,000, based on your income and credit score

The average annual percentage rate (APR) of interest is typically around 400%, which is why some people have trouble paying these loans back. You can either get cash through a storefront lender or receive funds on a debit card. To apply for this loan, you must have:

  • Proof of income;
  • An active bank account;
  • State-issued identification.

Additionally, the bank requires a signed loan agreement, which explains the loan terms, any fees associated with the loan, and how the loan is repaid. It is a legally binding document that holds the borrower accountable for repaying the loan, so it’s important to read this document carefully.

Title Loan

A title loan is another short-term loan that uses your car as collateral. The lender seizes your car if you cannot pay the loan within 15 to 30 days. The typical title loan has high interest rates and the loan amounts to 20% to 50% of your total car value. To get a title loan, you must:

  • Have a car;
  • Have a photo ID;
  • Have proof of insurance.

Lenders can charge up to 300% APR, which is much higher than other forms of credit. Additionally, you may be charged fees that increase the total cost of your loan, making it difficult to pay back. 

Before signing off on a title loan, make sure you understand the APR, cost of the fees, and the total cost of the loan so you can determine if you can pay it back. 

Pawn Shop Loan

A pawnshop loan refers to a loan from a pawn shop that requires your personal property as collateral. The pawn shop will assess the property and give you a loan based on 25% to 60% of the resale value. 

The typical loan APR is around 200% and the loan term lasts from 30 days to a few months. While there is no legal requirement to repay the pawn shop, you do forfeit your right to your property. To get a pawnshop loan, you must:

  • Be 18 years of age or older;
  • Show proof of identity;
  • Ensure your collateral is not stolen.

It’s common for these loans to come with steep fees, such as application, appraisal, and storage fees. If you are unable to pay, the pawn shop sells your collateral to get their money back. 

Same-Day Loans With No Credit Check or Bad Credit

If you are worried that you will be denied a loan because of your credit, some same-day loans won’t check your credit score. This may be ideal for people who don’t have a credit score or have bad credit

However, it’s important to note that these loans are potentially predatory loans that could trap you in a cycle of debt. For instance, because you have no credit, a lender could charge you double or triple the interest of a normal loan to ensure they will get a return on their investment. 

If you obtain a two-year, $2,000 loan with no credit, the lender could charge you 400% interest, while a borrower with excellent credit is charged only 7%. While you are paying $667 a month, they are only paying $89 a month. It’s easy to see how fast no-credit-check loans can get out of control. 

Same-Day Loan Pros and Cons

As with everything, there are pros and cons to same-day loans that you should be aware of. Benefits of same-day loans include:

  • They are easy to access;
  • They have fewer requirements than other loans;
  • Some don’t make hard credit pulls;
  • Many loans are unsecured. 

Cons of same day loans include:

  • They’re expensive;
  • Many loans are considered predatory;
  • It’s easy to get trapped in a cycle of debt;
  • They don’t help build credit

Knowing these aspects can help you determine whether these loans are right for you.

How to Get a Same-Day Loan

Obtaining a same-day loan is relatively simple. You can apply online or in-person to a same day loan lender. Once you are approved, you must fill out some paperwork. After, the funds should be deposited into your bank account the same day.

 Before you apply for a loan, it’s important to think about the following considerations:

  • Know how much you need to borrow and only borrow that amount;
  • Decide if you can pay back the full debt within the timeframe;
  • Understand how much interest you will be charged;
  • Ask about any charges, fees, and penalties associated with the loan. 

Taking these considerations into account can help you get the best loan terms possible. 

Same-Day Loan Alternatives

If you don’t think you can pay back a same-day loan, some alternatives can help in a pinch:

  • Lines of credit: With lines of credit, you can borrow funds up to a specified limit during a certain period of time, after which you must pay it back. The benefit to these is that you only pay interest on the amount you draw. 
  • Credit cards: Although using credit cards to pay down debt is not ideal, many cards offer lower APRs than same-day loans, which can help you in the long run. Additionally, you can pay off the amount with minimum payments, ensuring you aren’t stretching your monthly budget too thin.
  • Arranged overdraft: Borrowing through an overdraft facility may be a cheaper option and still allows you to access cash the same day. Your bank can set up access to an arranged overdraft on your current account.
  • Personal loans: A personal loan is a fixed-rate loan that lasts longer than the same-day loan. APRs are typically lower, however, they are determined by your credit score. 
  • Payday alternative loan (PAL): A PAL is offered by credit unions, which have lower fees and restrictions on how much a borrower can take out. This helps ensure you don’t borrow more than you can pay back. 
  • Home equity line of credit (HELOC): A HELOC gives you access to funds based on the value of your house. 
    • The amount you can borrow is based on the value of your home minus the amount you have left to pay on your mortgage. Additionally, you can continuously borrow from the line of credit instead of getting a lump sum, as you would with a traditional loan.

Same-day loans are convenient if you need access to cash immediately. However, it’s important to remember that these loans can easily send you into a debt spiral, so you shouldn’t borrow more than you need.

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