What Are Instant Loans & How They Work?

For many folks who need cash urgently or have a poor credit score, instant loans might seem like a blessing in disguise. Generally, within a day or two of getting approved for an instant loan – times even on the same day – people can receive fast cash into their accounts that can help them to pay for unforeseen expenses, such as a medical bill or car repair. If you are considering an instant loan, keep in mind that it comes with a steep price and can even put your finances in peril just as quickly. 

If you do not want to regret it later, be sure to give this article a read before finalizing a decision. Plus, it is always best to be well-informed before making any kind of financial decision. 

What We’ll Cover: 

• What are Instant Loans?
• Types of Instant Loans
• How Do Instant Loans Work?
• Are They Good? 

What Instant Loans? 

In a nutshell, instant loans are short-term advances typically for small sums of money that do not require a credit check. They might sound extremely convenient; however, it is crucial to know that these loans come bearing high fees and interest rates. In addition to this, the repayment term for interest loans is also considerably short. There are few types of instant loans, and they usually go by multiple names. 

Types of Instant Loans

Some of the most common types of instance loans include: 

·     Payday loans – Also known as “cash advance”, a payday loan does not demand collateral and generally provides you cash on the very same day. However, you have to repay the loan along with steep interest fees by your next payday. 

·     Car title loans – Also called a “pink slip loan”, this instant loan type requires collateral and is thus secured by your car’s title. You can still drive your vehicle, but you will have to repay the loan in full – including high- interest fees – by the due date. In case you fail to do so, you may risk losing your vehicle for good. You can get a title loan without proof of income.

·     Pawn shop loans – Just like car title loans, a pawn or pawn shop loan also requires collateral. For this loan, you will have to provide a valuable item to the pawn shop as security. In exchange for your item, you get a loan in a reduced amount than the item’s value. In case you fail to repay the loan by the due date, the ownership of your item will be claimed by the pawn shop.

Irrespective of which kind of instant loan you are considering or what a lender names it, it’s important to remember that this borrowing option is high-risk.

How Do Instant Loans Work?

According to a recent report, approximately two million Australian households took out 4.7 million instant loans (majorly in the form of payday loans) in the past couple of years. If you, too, are considering this quick borrowing option, here’s how it works:

·     Submit an instant loan request – As you know now, instant loans do not usually require a credit check. Nonetheless, you will be asked to provide your personal details, should be at least eighteen years old with a valid identity card, have a bank account, and provide proof of income. You can easily find highly rated instant loans online and in person at a local cash loan location, depending on where you live.

·     Provide a postdated check – Some instant loan lenders will also ask you to provide a postdated check marked with your loan’s due date. The check amount will comprise both the borrowed amount, as well as the interest. In addition to this, if you ever go through the process of applying for instant loans s online, you’ll notice that some lenders might also ask you for an Automated Clearing House (ACH) authorization for the provided bank account.

·     Loan funds transfer – Once all loan requirements are fulfilled, and you’re approved, the lender will provide the loan amount (minus fees) as a lump sum to you in cash. In the case of online instant loans, the loan amount might be directly transferred into your account. 

·     Loan repayment by due date – The loan repayment term varies; however, it usually ranges between two weeks or whenever your next payday is due. This also differs from lender to lender, contingent on the terms and conditions of the loan agreement. When you reach the loan repayment date, you will have to pay both: the loan amount as well as the interest fees. 

Are They Good?

Well, the answer to this question can vary from person to person. For individuals seeking urgent financial help or those who have a bad credit score, instant loans can be a lifesaver as several lenders do not go through credit scores or credit reports. However, for those seeking to build their credit, instant loans might be a bad idea as the lender does not report the payment history to the chief credit bureaus.

In addition to this, there are several other factors that need to be considered, such as loan term, loan amount, interest fees, etc. Only after considering all these factors can one decide whether taking an instant is worth the risk or not. Therefore, be sure to put in considerable thought before making a decision. 

Final Note

As instant loans come with short repayment terms and high-interest rates, they might not be an ideal go-to choice for everyone, especially those who are trying to avoid big expenses. But for those who can deal with its requirement, these loans can be just the thing they are looking for. If you feel instant loans are not the right option for you, do not worry. There are several other alternatives to choose from, including personal loans for bad debts, payday alternative loans, credit card cash advances, etc.

Nonetheless, if you think an instant loan is the only option you have, be sure to go through the terms and conditions of the lender you’re considering.