A direct deposit loan is similar to any other short-term or payday loan, except that instead of writing a check for the amount of the loan (plus the fee), the funds are deposited directly into your checking or savings account. In addition, when the loan becomes due, the amount you owe might also be electronically withdrawn from the same account. This provides an advantageous solution for both lenders and borrowers.
When you apply for a direct deposit loan, you will be required to provide the usual documentation (pay stub, photo identification, proof of bank account), but you will also need to give the lender your checking or savings account number and the routing number. A routing number is used to route the funds to your financial institution; the checking account number gives the funds a specific destination.
Of course, this level of personal disclosure requires that consumers practice due diligence in researching and evaluating potential lenders. Handing over your checking account number to just any old person with the cash you need is a recipe for disaster. Instead, choose a reputable lender with whom someone you know has done business in the past.
Once you’ve provided the necessary information to the lender, your direct deposit loan can be wired directly to your bank account. The time required for such a transaction varies; with some banks, the funds will be available on the next business day. With others, you might not see the cash for up to four business days. Make sure you know how long it will take before you sign any paperwork.
It is also important to know that some lenders will charge an additional fee for direct deposit loans. It costs them money to wire funds electronically, and they might pass that expense on to you, in addition to the loan fee and interest. Read all documentation carefully to ensure that no hidden costs will crop up throughout the course of the loan. It’s also a good idea to verify that your bank won’t charge you any fees for receiving the direct deposit.
In some cases, as mentioned above, the loan amount (plus fees and interest) will be automatically withdrawn from your checking account. This eliminates the need for writing a check for the loan amount, and reduces the amount of paperwork required for the lender. However, it’s important that you remember how much you owe and check your balance on the day the loan is due. You might have authorized this transaction, but you want to make sure that the lender doesn’t withdraw more money than he is owed.
Unfortunately, there are far too many predatory lenders on the streets for you to be careless about direct deposit loans. There are several opportunities for lenders to take advantage of you, especially when you’re desperate for money. Don’t allow your gratitude to cloud your good judgment, and always record any instances of fraud or misconduct on the part of a lender.
On the plus side, however, there are many benefits to direct deposit loans. You’ll probably get the money faster this way than if you attempted to get a regular payday loan. The money is available quickly for use at your discretion, and you don’t have to worry about handing over a check to a lender. It is also advantageous for you if you prefer to do business over the Internet. You don’t have to actually step foot into a store to complete the transaction.