When it is the end of the month and payday is still a few days away, there is a high chance of running out of money and requiring a loan. Do you fall in the category of requiring a loan amount on an urgent basis due to unforeseen expenses? Instead of applying for a payday lender, there is another option available for everyone: The Direct Deposit Loans. Even though the name might differ from payday loans, there are many things which are similar to it which is why it is important to understand its’ concept thoroughly before applying for one.
Defining Direct Deposit Loans
In layman terms, direct deposit loans are the ones which a person can receive from a bank at a time when they have no money and require it on an urgent basis. Applicants can receive the loans against their next paycheck, social security cheque or unemployment cheque they receive at the end of every month. This amount must be submitted to their bank account directly. This can make things very convenient for a borrower as they can easily borrow the money from the bank in times of urgent need. The idea is very simple: Provide loans to customers when they need it and then take it back from them when money is deposited in their account.
Applying for Direct Deposit Loans
The bank requirements for applying to get a direct deposit loan is very simple.
- Customer must be older than 18 years old.
- Customer must have a monthly source of income.
- Customer must have a checking account in which direct deposits can be made.
- Customer is not a member of any military organization or activity and does not have any dependence on a direct family member who is in the military. (Not every bank has this policy in them)
Disadvantages of Taking Direct Deposit Loans
Borrowers cannot take large sums of money from the bank. There is a proper check and balance implemented by the bank. Obviously, there is a limit attached to the amount of loan that can be taken by the bank. There are some banks who allow an advance of $500 but there are others which only let customers take a maximum amount of $250.
People opting for direct deposit loans need to remember that the borrowed amount will be directly deducted from their bank account as soon as any money is deposited in it. This can be a little overwhelming and unplanned for the borrower. The difference in payday loans is that there is a limit of days defined when the amount will be deducted from the borrower’s bank account.
Interest Rates and Direct Deposit Loans
But it is important to remember that taking direct deposit loans does not come without its own interest rates. Banks claim that it is better than payday loans because the interest on direct deposit loans is comparatively less than that of the payday loans. This benefits the borrower more than the bank.
Annual interest rate can be up to 365 percent on the loan amount within a term of 10 days. The longer a loan stays unpaid and outstanding, the larger the interest rate will be. Sometimes it can even reach upto 300 or 400 percent. This becomes an overwhelming amount for the person who has to pay it. A person who has taken the direct deposit loan can have their amount deducted within three days of time along with an interest rate. This deduction can be very difficult for borrowers to handle in terms of their regular finances.
Regulations for Direct Deposit Loans
As per the government policies, it is important to follow the regulation policies for direct deposit loan. Banks do not have the power or right to automatically enroll customers into the policy of direct deposit loans. They should discuss this option with their customers instead of making this decision by themselves. Moreover, any taxes or charges need to be explicitly mentioned beforehand to the customers. Any regulations or rules of the bank that need to be followed must be told to the customer before any decision regarding the direct deposit loan is taken by the customer. It is also strictly specified to banks that regulations must exist in place so that recurrences to apply and take this kind of loan repeatedly.
Banks try to make those people eligible for direct deposit loans who have an annual income more than $50,000. In accordance with the government regulations, banks try to regulate the taking of these loans by themselves. This means that they try to minimize customers becoming dependent on these kinds of loans. All the credit reports are provided to the credit bureau. Through their analysis, they are able to guide a person about their credit details and resolve any issues related to them. Moreover, it is only given to those customers who are regular clients and have a good record with the bank.
This ensures that they do not start taking direct deposit loan repeatedly and start depending on it. In most banks, if they are applied for and utilized for six consecutive months, then they are no longer eligible to apply for direct deposit loans for a few months. In order to ensure any fraud and reduce burden on customers, banks do not allow their customers to get the direct deposit loans if they are enrolled in any other line of credit.
Direct deposit loans are not the same as payday loans. Their interest rates might be lower in the beginning but maximizes within a few days. Most banks offer them to their customers. But as customers it is important to remember that an interest rate comes with it which can become very hefty with the passage of time. It is important to ensure that such situations are avoided where a large amount of a new deposit is deducted immediately from the bank account due to the previously taken direct deposit loans. Moreover, they should not be taken regularly from a bank.