Understanding Same Day Loans – How Does it Work?

No matter how well you manage your budget, there come some emergency expenses that throw a spanner into your plan. You may need quick funds to meet ends in many cases, such as a car breakdown or emergency medical bill. These are when same day loans can help you stabilize your finances. It is a source of funding that brings you cash instantly but at a higher cost. If you have not heard about these loans before, you may have many questions before using them as a funding source. So, we are going to explain how same-day loans work, their cost benefits and how you can find good alternatives to these loans.

Let’s start with understanding what the same day loans means

What are The Same Day Loans?

The same-day loan is also known as an emergency loan, and it is any loan that is disbursed the same day you get approved for it. It provides you with quick funding, but you must remember that you have to dig deeper into your pockets when making repayments. Sometimes these loans are also referred to as same-day payday loans because these are short-term loans that you have to repay around a month or two. These types of short-term loans tend to be more expensive than other types of borrowing. For example, you could see that the same-day loan carries an annual percentage rate of 400%, which is very high in comparison to personal loans. The APR of a 24-month personal loan is 9.58%, and the assessed interest rate for credit cards was 16.3 %, according to Federal reserve data in May 2021. By comparing same-day debts with the other loans, we suggest you shop around and wait for a few days to enjoy a cheaper option.

How Do Same Day Loans Work?

Same-day loans match perfectly with payday loans because they are typically used by individuals who need instant funding for a sudden expense. You may find different lenders offering same-day loans online. In order to get a loan, you have to choose a lender and make sure that you meet the eligibility requirements before making a loan application. The eligibility criteria vary from lender to lender, but most of them want borrowers to be of 18 years, a UK resident and have a steady income.

Make an online application and provide all the required details. Once you complete the application process, the magic of same-day loans comes in. lenders review your loan application immediately and usually, you will hear back from them within minutes. So whether you are approved or not, you will come to know it straight away. If your application is approved, you will receive an offer from the lender that you can accept or reject. When you choose to proceed with this loan offer, you will see the funds transferred to your bank account within minutes.

Types of Same Day Loans

Same-day loans typically offer small amounts of money and loan terms that last only for a few weeks to months. Here are different types of same-day loans that you should know to choose the right one for yourself:

1. Payday Loans

These are the loans that are designed to cover your short-term expenses until your next paycheck. You can get such loans online or by going to the lender’s premises. Payday lenders offer simple application procedures, and eligibility requirements are less. After assessing your loan application, the lender will ask you to provide some necessary documents. These required documents may vary depending on the lender you choose. For example, a lender may ask for bank statements or a blank check. The next step is the disbursement of funds within a short time.

The repayment period for payday loans is also short, and usually, lenders deduct the loan amount plus the interest rate directly from your bank account as soon as your paycheck matures.

Although payday loans allow you to get funds without a credit check, this flexibility comes with a high borrowing cost. You can get a loan even if you have bad credit, but you should keep in mind that you have to pay a high-interest rate. This interest rate can be different for different lenders. Some lenders charge a flat fee for the whole amount, while others charge a certain percentage for a specific amount. For example, 10% interest on every £100, which means if you borrow £200, you have to pay a 20% interest rate, and it keeps on increasing with the loan amount.

2. Car Title Loans

You can get these loans by using your vehicle as collateral. The lender will hold your car’s title and lend you a certain amount against it. You do not need to leave your vehicle to the lender and continue using the vehicle. However, if you default and are unable to repay the loan amount due for any reason, the lender has the right to sell your vehicle to get his money back.

Most lenders do not carry out a credit check for title loans, and it is enough for them that you have a car to use as collateral. As a result, the money is disbursed quickly, but like other same-day loans, you can not borrow a huge amount with these loans.

Lenders charge various fees, such as processing and financing fees that are 25% per month, and it could work out to an APR of 300%. These charges make title loans an expensive way of borrowing. Therefore, you not only have a risk of losing your car in case of default, but you will also get less than what you applied for because the lender cut different fees from your loan amount.

3. Credit Card Cash Advance

Many of you have a credit card but do not use it to pay a bill and do not know what to do when you need instant cash. Taking a cash advance from your credit card is another way to secure fast funds. You can withdraw cash through a bank or credit union. In addition, you can get cash from an ATM if you have a card PIN.

The only drawback with this type of funding is that you have to pay an upfront fee. Typically, you have to pay 5% of the amount you borrow as a fee. Lenders deduct this fee automatically when you take a cash advance. If you do not have money in your account to cater for that fee, you have to deposit it or pay it as cash first.

The interest rate on the credit cash advance is also higher than the standard purchase interest rate. In addition, unlike credit card balance on purchase, cash advances do not offer the benefit of the grace period and start accruing interest immediately.

4. Pawnshops

You can get Pawnshop loans by using any of your valuable assets as collateral. You can get a specific percentage of the item’s market value as a loan amount, and the pawnshop lender keeps your item until you repay the loan amount. The fees that you have to pay with such loans also vary from lender to lender. However, you can get funds the same day and fulfil your emergency financial obligations. Now you know different types of same-day loans, and we see that all of these loans are expensive but are they worth it? To get this answer, you have to look at the benefits and drawbacks of same-day loans.

Benefits Of Same Day Loans

If you are in a hurry to get cash, you will obviously look for options that take less time to process and grant quick funds. The processing and disbursement of same-day loans complete the same day and makes them the quickest funding source. You will know in a short time whether you are eligible to get a loan or not. Suppose if you are not eligible, you still have time to look for other options. Same-day loans offer many other benefits, some of which are as follows:

1. Flexibility

Same-day loans offer flexibility to borrowers as compared to other loan types. You will not only get the loan amount the same day but also find the loan terms that suit you. Lenders are ready to cater loan terms to meet the needs of borrowers. In addition, you can also choose a period to pay the loan amount plus the interest rate.

2. Easy Management

Most same-day lenders operate through online platforms. You can apply for loans online and receive funds without the hassle of going to the lender’s premises. You can also repay the loan amount through an online account. It helps you to control and manage your boring activities. You can easily know your loan balance and repayment dates.

3. Very Few Requirements

Usually, lenders need tens of documents before approving a loan application to ensure that you can afford to repay the loan. But same day loans do not include lengthy paperwork. Instead, all you need to provide is your social security number or ID, active bank account and regular source of income.

4. Credit Score Doesn't Matter

It can be challenging for you to secure a loan from traditional financial institutions when you have a bad credit score. But same day loans are also available for those who have a poor credit history. You can get a loan no matter what your credit score is but the lower your credit score, the more interest you have to pay to cover risks.

Drawbacks Of Same Day Loans

No doubt, same-day loans offer numerous benefits to the borrowers, but they have some drawbacks that you must know before making a final decision.

1. Expensive Way Of Borrowing

The most significant disadvantage of same-day loans is that they come with high-interest rates compared to other ways of borrowing. Therefore, you must take out such loans only when you need a small amount of money for a short period.

2. Debt Trap

With same-day debts, it is common for people to fall into a debt trap. It is because people do not manage to pay high-interest rates. They may take a new loan to repay this loan and can never get out of this problematic situation.

3. Lender Have Access To Your Bank Account

Most lenders have access to your bank account and withdraw cash from your bank account when you receive your salary. If you are unable to repay on time, lenders can also charge expensive fees for payment delays. These large withdrawals from your account can also impact your credit score, which is even worse.

Do Banks Offer Same Day Loans?

Banks may approve your loan and transfer funds to your bank account on the same day, but applying and getting funds can take several weeks or months.

You can find some credit unions offering same-day or fast loan options. For example, Navy Federal Credit Union has a simple and fast application process, and once your application is approved, you can get the loan amount transferred to your active account within 24 hours.

You may also be able to get your funds within a few business days after getting approval and signing the documents.

Is the Same Day Loan Option Right For You?

Since same-day loans are applied on short notice, we suggest being a little bit cautious. Despite being in a hurry, you must take time and read everything about the loan carefully to understand the agreement. It can save you from any inconvenience later. In addition, you must take into account loan terms, the minimum and maximum amount being offered, interest rate and additional fees.

You must be careful when choosing a lender. Always select a reputable, experienced lender that offers competitive rates and follows best lending practices. When you understand all the terms and conditions and get the same-day loan from a well-known lender, it can be a perfect solution for your short-term financial needs.

How Much Can You Borrow With the Same Day Loan?

With numerous online lenders, you can borrow different amounts through same-day loans. Some lenders offer up to £15,000, but it all depends on the lender you choose, your personal circumstances and how much a lender thinks that you can afford to repay. You must compare different lenders to find the best affordable deal. If you do not have to compare lenders, you can go to online comparison sites that can provide a quick comparison and also help you get quotes from a lender that suits your circumstances.

To know how much you can borrow, you have to provide some necessary details such as your bank account details, address and proof of income. Once you make a same-day loan application and provide the required information, these comparison sites can help you know how much you can take out and find the right lender for you.

Are Same Day Loans Safe?

When you take out a credit agreement, be it a credit card or a loan, you are under the protection of the FCA (Financial Conduct Authority). FCA regulates these financial products, including same-day loans, and it is their responsibility to protect consumers.

The FCA also has a consumer credit register. This is a register of financial companies that you can check before taking out a loan from them. Moreover, if you have any issues regarding the company that has provided you with credit, you can contact the Financial Ombudsman for help.

Alternatives To Same day Loans

Although same-day loans come with numerous benefits, such as instant funding, they may not suit everyone. If you can not afford to pay high-interest rates, you can look for alternatives and find better options. Here are a few alternatives to same-day loans:

1. Credit Unions

If you have a bad credit score, are already in debt or are rejected by the banks, again and again, you can apply for a loan through a credit union. You must look for a credit union in your area to get a loan at an affordable rate. However, you must be a credit union member to take a loan.

2. Personal Loans

You can also apply for a personal loan to get quick funding, but such loans have longer repayment terms and are mostly available to those with good credit scores. However, personal loans are much cheaper than same-day loans.

3. Bank Options

Borrowing from a bank in the form of a credit card or overdraft is usually a cheaper option. However, most banks approve your application when you have good credit.

4. Borrowing From Friends Or Family

It has never been a fun option to ask a family member for a loan, but if you are in a condition where you can not afford to pay any type of interest, you may find a family member willing to help you out. You must make sure to pay them back on time so that your relationship is not compromised.

Conclusion

Same-day loans are essential to everyone who needs instant funding to fulfil emergency financial needs. As we have described above, you have many benefits, such as a simple loan application, few requirements and access to funds typically within 24 hours. However, these are high-interest-rate loans, and if you fail to repay the loan, you can be in a worse situation than before. Therefore, you must look for cheaper options, and if the same-day loan is your final decision, you must compare different lenders to find an affordable deal.