Direct deposit loans and 11 quick alternatives

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Direct deposit loans may seem like a quick and convenient way to get cash until your next paycheck, but their exorbitant fees can trap borrowers in a cycle of debt. (iStock)

Direct deposit loans are another term for payday loans, but instead of receiving funds in the form of cash or checks, they are deposited directly into your bank account.

These loans may seem like a quick and convenient way to cover your immediate cash needs until your next paycheck. But their exorbitant fees can trap borrowers in a cycle of debt.

Here’s what you need to know about direct deposit payday loans, plus some alternatives when you need cash fast.

If you’re looking for a loan, Credible lets you compare personal loan rates in minutes.

What are direct deposit loans?

Direct deposit loans are small, short-term loans that are deposited directly into your bank account — sometimes the same day you apply — and payment is due on your next scheduled payday.

Many other traditional loans, including personal loans, can be deposited directly into your bank account. But for this article, the term “direct deposit loans” is used to mean “payday loans”.

Although state regulations vary, direct deposit loans have some common characteristics.

  • Small loan amounts — Most direct deposit loans are $500 or less.
  • May require a post-dated check — The lender may ask you to provide a post-dated check for the full balance, including fees, or require authorization to withdraw funds electronically from your bank account. If you do not repay the loan by the due date, the lender may cash the check or write your account for the full amount.
  • Basic requirements to qualify — Most direct deposit lending companies do not consider your ability to repay the loan while meeting other financial obligations during the approval process. They only require borrowers to be at least 18 years old and have an active bank account and proof of income.

With few credit requirements, direct deposit loans make it easy to borrow money for short-term needs like car repairs and other emergencies. Unfortunately, seven in 10 borrowers use them for regular, recurring expenses like rent and utilities, according to The Pew Charitable Trusts. With annual percentage rates averaging 391%, direct deposit loans are an expensive way to cover day-to-day living expenses.

Advantages and disadvantages of direct deposit loans

Like any financial product, direct deposit loans have advantages and disadvantages that you will need to consider carefully.

Advantages of direct deposit loans

  • Easy access — With few requirements and cash within 24 hours, direct deposit loans are much more accessible to bad credit and low-income borrowers than traditional bank loans or lines of credit.
  • No credit check — Most traditional lenders require borrowers to have good credit to qualify for a loan. But direct deposit loans don’t require a credit check, so there’s no credit check on your account that could lower your credit score.
  • Insecure — Unlike car loans and mortgages, direct deposit loans are not secured by your property, so the lender cannot seize your property in the event of a default. But the lender may have access to your bank account, so they can withdraw money from your account if you haven’t repaid your loan by the due date.

Disadvantages of direct deposit loans

  • High interest rates and fees – While many states cap direct deposit loan fees, even a seemingly low finance charge equates to a high annual percentage rate, or APR, due to their short-term nature. A two-week loan with a fee of $15 per $100 borrowed equates to an APR of almost 400%, according to the CFPB. Borrowing the same amount on a credit card with an interest rate of 30% would cost less.
  • Traps borrowers in a debt cycle — If you cannot afford to repay the loan when it is due, the lender may allow you to convert the debt into a new loan (and pay an additional fee). This dramatically increases the cost of borrowing and the time it takes to repay the loan, trapping you in a cycle of debt. In fact, more than 80% of direct deposit loans are rolled over or followed by another loan within two weeks, says the CFPB.
  • Target minority communities – Twice as many direct deposit lenders operate in communities with large numbers of Black and Latino residents, and payday lenders direct their marketing and advertising toward Black and Latino customers, according to the Center for Responsible Lending. So, people who have historically struggled to accumulate wealth are the ones who are usually targeted by these predatory loans.
  • Unscheduled bank withdrawals are common — Your direct deposit lender may require access to your bank account. This access may be promoted as a convenience, but one in three online direct deposit loan borrowers have reported unauthorized withdrawals from their checking account, according to The Pew Charitable Trusts. If an unauthorized withdrawal results in an overdraft, you could face high fees from your bank on top of what you owe on your loan.

Overall, the disadvantages of direct deposit loans, like payday loans in general, far outweigh the advantages. It is important to consider all the alternatives before turning to a direct deposit loan as a last resort.

11 alternatives to direct deposit loans

Depending on the lender, your credit, and if you have a co-signer, you may qualify for a lower APR and more favorable terms with a traditional personal loan. And once you’re approved, you can usually receive your money within a week — perhaps faster if you go through an online lender instead of a local bank branch or credit union.

If you need cash fast, consider one of Credible’s partner lenders, all of which offer fast financing.

With Credible, you can compare personal loan rates from different lenders without affecting your credit.


  • Loan amounts: $2,000 to $35,000
  • Funding time: From the next working day
  • Minimum credit rating: 550

Axos Bank

  • Loan amounts: $5,000 to $35,000
  • Funding time: Next business day
  • Minimum credit rating: 740

best egg

  • Loan amounts: $2,000 to $50,000
  • Funding time: Within 1-3 business days after successful verification
  • Minimum credit rating: 600

To discover

  • Loan amounts: $2,500 to $35,000
  • Funding time: From the working day following acceptance
  • Minimum credit score: 660


  • Loan amounts: $2,000 to $36,500
  • Funding time: From the next working day
  • Minimum credit rating: 580


  • Loan amounts: $5,000 to $100,000
  • Funding time: As soon as the same working day
  • Minimum credit rating: 660

OneMain Financial

  • Loan amounts: $1,500 to $20,000
  • Funding time: Same business day, but usually requires a visit to a branch
  • Minimum credit score: Nothing


  • Loan amounts: $2,000 to $40,000
  • Funding time: As soon as one working day
  • Minimum credit score: 640

Universal Credit

  • Loan amounts: $1,000 to $50,000
  • Funding time: Within 1 business day once approved
  • Minimum credit rating: 560

To improve

  • Loan amounts: $1,000 to $50,000
  • Funding time: Within one day after completing the necessary checks
  • Minimum credit rating: 560


  • Loan amounts: $1,000 to $50,000
  • Funding time: As soon as one working day
  • Minimum credit score: 580

How to get a personal loan

When it comes to personal loans, there is no one option. Here are some steps that can help you find the loan that’s right for you.

  1. Prepare your finances. Some lenders work with borrowers with poor credit, but having good or excellent credit will get you the best interest rates.
  2. Compare the prices. Many lenders allow you to check rates online without a full application or firm credit application. Shop around with several different lenders to compare interest rates and terms.
  3. Apply. Once you’ve found a good offer, follow the lender’s instructions for submitting an application. Eligibility requirements vary from lender to lender, but generally you must authorize a credit check, verify your identity, and provide proof of income.
  4. Close your loan. Once your loan application is approved, the lender will send you the final loan agreement to sign. After signing the documents, the lender will usually deposit the funds into your bank account, often within one business day.

If you’re looking for a personal loan, compare personal loan rates using Credible.

Other options for quick funding

Personal loans aren’t the only alternative to direct deposit loans to help cover unexpected expenses. Here are a few more to consider.

  • Credit card — If you have good credit, you may qualify for an interest-free credit card for a limited time. But even if you don’t qualify for a zero-rate credit card, a high-interest credit card will likely be cheaper than a direct deposit loan.
  • Pawnbrokers — Pawnbrokers do not require a credit check. You leave something of value as collateral and borrow a percentage of the item’s value. As long as you repay the loan within a certain time, you get your item back. Be sure to read the fine print, though: Depending on state law, pawnshop APRs can be over 200%.
  • cash advance apps – Many online and brick-and-mortar retailers are now partnering with “buy now, pay later” (BNPL) apps that allow shoppers to buy the items they want now and pay for their purchases over time – often in four installments every two weeks. Many BNPL services do not charge interest as long as you make your payments on time.