Instant Personal Loans

What is an Instant Loan?

An instant loan is a small personal loan or cash advance without the borrower making a down payment or posting any security for the loan. Typically, used for short term and/or emergency expenditures, these loans are available to borrowers even with low credit scores. This makes them a potential option for a wide demographic of audience. The loan itself has minimal requirements in terms of the application process.

Finally, once the process is complete, funds are transmitted to the borrower’s accounts almost instantaneously. Once the funds change hands, the borrower is obligated to repay this loan once he/she receives their next paycheck.

Interest Rate of an Instant Loan

Because these types of loans are unsecured by nature, the interest rates attached to them generally tend to be higher. Unsecured in this scenario means that no collateral is posted in the transaction, implying that the loan is extended based on the borrower’s creditworthiness. This constitutes a higher risk for the lender.

In another case, a secured debt facility like a mortgage, the lender can recoup potential losses by seizing the asset and selling it on the open market. However, since this is not an option in the unsecured transaction, the lender charges a higher rate for the extra risk undertaken.

The other factor coming into play here is that these loans are provided almost instantaneously without major credit checks. This is again a risk factor for the lender, as they are now lending to borrowers with potentially low credit scores without prior due diligence to evaluate their credit profiles. The combination of the two factors above is what makes interest rates on unsecured instant loans higher than secured loans.

Typical Users of Instant Loans

Because of the higher risk to lenders and the elevated interest rates to borrowers, instant loans have much smaller principal amounts. The average user of an instant loan would therefore exhibit one or more of the following features:

1. Can’t get a personal loan from a banking institution due to credit.

2. Urgent need for short-term funding or emergency expenses. 

3. No savings or access to funds from friends or family

4. Have stable income and can make the interest and principal repayments on time 

Where can you get an Instant Loan?

Instant loans in Canada are not typically offered by banks. Most banks offer personal loans in the form of secured debt e.g. mortgages, auto loans etc. 

Instant loans are therefore provided by specialist private financing providers available online. These financing providers are not as stringently regulated by the government as the banks.  Therefore, it is a good idea for borrowers to read all credit documents carefully before signing on the dotted line.

What do you need to qualify?

Instant loans generally have much less requirements from a documentation perspective than other personal loans offered by banks. To be able to qualify for one, the borrower needs to have the following:

1. Valid government-issued ID (e.g. a driver’s license)

2. Pay stubs and/or bank statements

3. Proof of employment (some lenders may ask for this if the pay stubs are dated beyond 3 months)

What to watch for?

As noted previously, instant loan providers are not as heavily regulated as banking institutions, and therefore have products that are not as standardized or homogenous. Some of the terms that may vary across different lenders are:

1. Interest rates: The clearest differential between different lenders, and the most critical one for prospective borrowers to be aware of is the difference in rates on an APR basis.

2. Loan period: Although most instant loans are payable upon the advent of the borrower’s next paycheck, different lenders have different policies with regards to debt rollovers.

3. Fees: Before signing credit documentation, it is extremely important to be aware of the various fees that are mandatorily charged. Find out about fees that could be charged later down the line as well. The total cost of a loan could be vastly different than simply the interest repayments once these added costs are factored in. Some of these include:

1. Processing, origination or administration fees

2. Penalty for late payments

3. Rollover fees

4. Non-sufficient fund (NSF) fees

5. Lump sum payment fees etc.

Key Advantages:

Although offered at higher interest rates, instant loans do serve certain purposes for cash-strapped borrowers. These include:

Factors to Consider:

However, there are also certain features of instant loans that can pose risks to prospective borrowers:

FAQs:

1. How long does it take from start to finish to apply to an instant loan?

The application process can take under 15 minutes while funds can be transferred within a few hours to one business day after.

2. Is an instant loan only for people with poor credit?

No, an instant loan can be used by anyone. However, for people with acceptable to solid credit scores, a personal loan from a bank could be a better option if time to fund isn’t a consideration factor.

3. How much can a borrower be approved for?

Most lenders set their own caps on borrowing limits. However, on an individual scale, the lender will use their own processes or algorithms to analyze borrowing capacity and lend an amount accordingly.

4. What happens if the borrower doesn’t repay on time?

In some cases, lenders may allow debt rollovers for an additional fee. However, if this option is not available and the borrower cannot reach an agreement with the lender directly, there could be legal proceedings initiated.

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