Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 19, 2011

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Most payday loans come from private specialty cash advance shops; however, more and more banks are offering a financing option similar to payday lending, except they list it under a different name. Banks offer what they call “direct deposit,” “checking account advance” or “direct deposit advance” loans, which allow borrowers to get emergency cash based on their paycheck.

Direct deposit loans are not subject to restrictions imposed on payday loans, which are either capped or banned in many states. As of now, borrowers can only get these loans at certain banks, such as Wells Fargo and U.S. Bank. However, trends show that it is becoming more readily available.

The loan takes into account the amount of the borrower’s paychecks when they are set up to directly deposit into his or her account each payday. With the advance, the borrower can access the paycheck funds before they officially become available, and the balance is deposited into his or her bank account prior to payday. This can be more convenient than a traditional payday loan because borrowers can get it online or in person at their own bank.

While direct deposit advances can get an individual the fast cash he or she needs, the loans can come with many of the same financial hits as payday loans. For example, they come with high interest rates, extra fees and short repayment periods.

According to a study by the Center for Responsible Lending, “Bank payday loans are very expensive, carrying an annual percentage rate (APR) of 365 percent based on the typical loan term of 10 days.”

Also, the loan balance is subtracted automatically by the bank from the borrower’s account at the end of the 35 day loan period, even if there are insufficient funds in the account – leading to overdraft fees, the study reports.

Despite these possible disadvantages, however, payday-like loans from banks can offer easy money deposited right into the borrower’s own bank account in the event of a financial emergency – which, banks say, is what the loans aim to provide.