What are the Pros and Cons of a Direct Deposit Payday Loan?

Lainie Petersen

The pros and cons of the direct deposit payday loan are numerous and include the ability of individuals to receive a payday loan regardless of credit, but at the price of very high interest rates. In addition, a direct deposit loan gives the payday loan company access to the borrower's bank account, which presents numerous risks for the borrower, including the possibility that the payday loan company can easily seize all of his funds in case of a dispute. A direct deposit payday loan may be the only way, however, that some people can get quick access to extra cash in emergencies.

A direct deposit payday loan does not require applicants to have a credit history.
A direct deposit payday loan does not require applicants to have a credit history.

Direct deposit payday loans are short-term, high-interest loans that coincide with the borrower's pay cycle. Borrowers can take out a loan to be repaid on their next pay date. A direct deposit payday loan does not require that a borrower provide the lender with a postdated check to be deposited on pay day. Instead, the borrower gives the payday loan lender her checking account information. The lender direct deposits the loan into the borrower's account and is then repaid through an automatic bank draft from the same account.

The advantages of a direct deposit payday loan are primarily convenience and access to emergency funds. Direct deposit does not require ongoing visits to a check-cashing store or office, and the entire transaction can be handled online or via fax. This represents considerable time savings and the ability of the borrower to get the funds he needs without interruptions at work. As direct deposit payday loan companies do not check an applicant's credit history, in cases where a borrower truly needs cash, this form of lending can help people prevent the shut-off of utilities, eviction, or having to go without food because of lack of funds.

There are also significant disadvantages to taking out a direct deposit payday loan. The fees and interest rates associated with these loans can be ridiculously high and can get people into a debt cycle from which they find hard to break. The interest payments can cost so much that people need to take out additional loans just to maintain a positive cash flow. If a person defaults on a loan, the payday loan company has her bank account information and can repeatedly draft the account to get its money back. Each draft may cause the borrower to incur additional fees from both the payday loan company and his bank, further damaging his financial health and depleting his financial resources.

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