The term overnight loan is usually used to refer to a payday loan. Payday loans are loans that don't use traditional collateral but are instead guaranteed by your next paycheck. You can typically borrow up to $2,000 (depending on your income) and have to pay the loan off in full on your next payday. You will turn over to the lender your bank account information and they will automatically debit your checking account for the loan amount plus fees on your next payday. Because they can be obtained very quickly, payday loans are often referred to as overnight loans. You can apply for a payday loan today and in most cases you can have the money in your checking account the next day.
Qualifying for an Overnight Loan
Are payday loans hard to get? The simple answer to that question is no, they are not hard to get. If you have a job with verifiable income and a checking account you can get a payday loan as long as your income meets the lender's requirements. Because payday loans are secured by your next paycheck they do not require the lender to look at your credit report. This can be beneficial for a consumer that has bad credit and needs to get emergency cash immediately.
Payday loans are easy to get but they are an expensive way to borrow money. Payday lenders do not usually attach an APR to their loans as is the case with traditional loans like auto loans and mortgage loans. Instead, they collect a flat fee based on the amount you borrow - a typical example would be a fee of $15 for every $100 borrowed. Payday loans usually go up to a maximum amount borrowed of $2,000. In the case of a $2,000 loan you would pay the lender approximately $300 in fees. When you consider the fact that this loan has to be paid off on your next payday (2-4 weeks from now) you can see that this is a very expensive way to borrow money for a very short period of time.
Payday loans do have their place and if used responsibly they can help get you out of a serious financial jam. The biggest danger of payday loans is when they are not paid off in full but instead rolled into another loan. Let's say you take out a $500 payday loan but when your next payday comes around you don't have enough to payback the loan in full. Your lender may give you the option of taking out another loan and rolling the old one into it. This gives you a few more weeks to come up with the money but you now owe fees on the new loan as well. This process can quickly snowball into a situation where you get buried under a mountain of new loans and fees. Payday loans should only be used to bridge a short term hardship (in other words a situation that will be fixed by money coming in very soon). Payday loans should never be used to try and fix an ongoing situation where your bills consistently exceed your income.
Alternatives & Options
Since payday loans are an expensive way to borrow money it is reasonable to explore alternatives. If you have bad credit, there are other options but they are not perfect. An unsecured personal loan from a bank or credit union is a good option if your credit score is above 650. With a credit score in the low 600s or below, a personal loan will not be an option.
A secured credit card is a great way to help improve your credit score quickly and get access to a line of credit (even if it is secured) at the same time. A consumer can use a secured credit card in order to plan ahead for any possible financial turmoil. If you have bad credit and are afraid you might lose your job or you're prone to spending more than you take in, it would make sense to set up a secured credit card when times are good. When you've had a couple of months where you have money left over at the end of the month - take the extra money (even if it's just a couple hundred dollars) and use it to set up a secured credit card account. This way, you will be prepared when something unexpected comes up. Therefore, instead of having to rely on a payday loan, you can use your secured line of credit. Once you pay it off, you can use it again just like any other credit card. You get access to cash and you improve your credit at the same time.
Another option for getting cash if you have bad credit is to get a loan through a lending club or social lending website. This method of borrowing money has rapidly increased in popularity over the last several years.
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