What is a Spot Loan?

A spot loan is a type of unsecured personal loan or installment loan to help cover unplanned expenses.

You can often find spot loans from online lenders. If you’re approved, some spot loan lenders may fund a spot loan within a few hours or by the end of the same day.

How do spot loans work?

Spot loans might not have as stringent credit or income requirements as other types of installment loans, such as traditional personal loans. This convenience and accessibility can come at a cost, though. Spot loans may come with high interest rates and fees, as well as short repayment terms of 12 months or less. Before taking out a spot loan, make sure you understand the costs of borrowing and can afford the loan payments.

Spot loans can help you out in a pinch when you need fast funding. Here are the pros of spot loans:

• Fast approval and funding: Spot loans are meant to be accessed fast. They usually have an easy application process, an immediate spot loan approval decision, and funding on the same day you apply.
• No collateral required: Spot loans don’t require you to put up any personal assets, like your car, as collateral. You can’t lose your personal property if you fail to pay.
• You can get a spot loan with poor credit: Spot loans can have less strict credit or income requirements than traditional loans, so you can get one with a low credit score or no credit history.
• You can possibly build credit: If your lender reports to the credit bureaus, making on-time payments can help you improve your credit score.

The convenience and accessibility of spot loans come at a cost. Consider these cons of spot loans before you borrow:

• High interest rates: Spot loans may come with three-figure interest rates, potentially making your loan very expensive. In contrast, personal loans typically cap their rates at 36% APR.1 This makes spot loans much more expensive than personal loans or credit cards.
• Short repayment periods: Repayment periods are typically short – 12 months or less. High monthly payments can strain your budget.
• Late payments can hurt your credit: Missed or late payments may be reported to the credit bureaus, damaging your credit score.
• Predatory lending practices: Some spot loan lenders may target vulnerable borrowers with unaffordable repayment plans. Read through all the terms and conditions to protect yourself.

If a spot loan doesn’t feel like the right fit, you have other options.  Here are a few alternatives that could help you out:

1.  MyPay^®: At Chime, MyPay lets you get up to $500 of your pay before payday.^{^} There are no mandatory fees, no interest,~ and no credit checks. Just open the Chime app, see how much of your pay you’re eligible to take as an advance ahead of payday, and select how much you want.
2. Personal loans with a cosigner: Unsecured personal loans don’t require collateral, and may have more reasonable interest rates than spot loans. You can boost your chances of approval by applying with a cosigner. Cosigners share responsibility for the debt, and adding one to your application can reassure a lender that you’ll pay back your loan on time.
3. Secured personal loan: Secured personal loans have less rigid credit requirements than unsecured ones. You can back your personal loan with collateral like a vehicle, personal savings, or another valuable asset.
4. Payday loan: Payday loans are high-interest, short-term loans are typically due on your next payday with APRs often exceeding 400%, making them one of the most expensive ways to borrow. They also pose a risk of trapping borrowers in a cycle of debt. Learn more about the differences between payday loans and personal loans
5. Become an authorized user: If low credit is preventing you from qualifying for a credit card, you can become an authorized user on someone else’s card. Authorized users are able to charge expenses to the card. The cardholder will still be responsible for making on-time payments, however, and their credit will be impacted by how you use the card.

Eligibility varies by lender, but you typically need to:

• Be at least 18 years old
• Have a verifiable income source
• Have an active bank account
• Meet the lender’s minimum credit score (if applicable)

Spot loans may be easier to qualify for than traditional loans, especially if you have poor credit or limited credit history.

Spot loans can help you out in an emergency, but they come with high costs and risks. Before applying for a spot loan, consider the following:

• Can you afford the monthly payments within the short repayment window?
• Are there alternative options with lower costs?
• Is the lender reputable and transparent?
• Will this loan improve or hurt your financial situation long-term?

If you qualify for a personal loan, these are more affordable and less risky.

For more on last-minute financing options, check out our guide on emergency loans.