Spot Loan: Definition, Pros, and Cons

A spot loan is a type of personal or business installment loan that’s designed to cover immediate expenses. You can often find spot loans from online lenders and get an immediate decision on your application. If approved, you should receive your funds the same day, usually within a few hours.

Spot loans are typically unsecured, meaning they don’t require you to put up any personal assets as collateral. They also 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 a year 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’re in need of fast funding. Here are the main advantages of borrowing a spot loan.

Pros of spot loans

• Issued quickly: Spot loans are meant to be accessed fast. They usually have an easy, streamlined application process online or over the phone, an immediate spot loan approval decision, and funding the same day you apply. This speedy process could be a big help in a financial emergency.
• No collateral is necessary: Most spot loans don’t ask you to back them up with collateral, such as your car or savings account. That means you won’t risk losing your personal property if you fall behind on the loan.
• Often available to borrowers with lower credit scores: Spot loans may have more flexible credit requirements than some other types of credit, like traditional personal loans and credit cards. This makes them more accessible to a wider range of borrowers, and they may be worth exploring if you’re wondering how to get a loan with no credit.
• On-time payments could help you build credit: If you keep up with your loan payments, your spot loan lender may report your on-time payments to the credit bureaus, which could boost your credit score over time.

Although spot loans can be convenient, they also have some potential downsides to be aware of. Consider these cons of spot loans before you borrow.

Cons of spot loans

• High interest rates: Spot loans may come with three-figure interest rates, which would make your loan very expensive. Personal loans, by contrast, typically cap their rates at 36% APR, which some experts suggest is the dividing line between an affordable loan and an unaffordable, potentially predatory loan.¹
• Short repayment periods: If you borrow a spot loan, you might not have much time to repay it. Spot loans often have short repayment terms that only span a few months or a year. A short loan term means higher monthly payments, which could be tough to afford if your finances are tight.
• Late payments could hurt your credit score: If you fall behind on your loan, the lender might report your late payments to the credit bureaus. Late payments can damage your credit score and make it difficult to qualify for other loans in the future.
• Predatory lending practices: There’s a high potential for predatory lending practices in the world of spot loans, since these loans may be geared toward borrowers in difficult financial circumstances. Lenders may extend financing without much of a background check to people who can’t afford repayment. Plus, loan providers could charge exorbitant interest rates and high monthly payments. Be cautious that you’ve read through all the terms and conditions to protect yourself from deceptive lending practices.

If you find that the cons of a spot loan outweigh the pros, you may have other options at your disposal. Here are a few alternative types of loans that could help you out.

1. Consider a co-signed unsecured personal loan: Unsecured personal loans don’t require collateral, and may have more reasonable interest rates than spot loans. Qualifying for a personal loan with low credit or an unstable income can be difficult, but you could 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.

2. Take out a secured personal loan: Secured personal loans may also be an option, and they usually have less rigid credit requirements than unsecured ones. Depending on the lender, you may be able to back your personal loan with a vehicle, personal savings, fixtures in your home, or another valuable asset. Secured loans may come in larger amounts and offer longer repayment terms than unsecured ones.

3. Use a cash advance app: Cash advance apps offer small-amount loans, often up to $500, that you pay back on your next paycheck. They don’t typically require a credit check and may be fee-free if you can wait a few days for funding. Same-day funding may also be available for an additional charge.

4. Become an authorized user: If low credit is preventing you from qualifying for a credit card, you might still use one by becoming an authorized user on someone else’s card. As an authorized user, you’ll be 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. Make sure both you and the primary cardholder are on the same page about using and paying back the credit card before choosing this route.

Warning: Be wary of payday loans, which can trap borrowers in a cycle of debt. Payday loans usually require repayment on your next payday and can have APRs of 400% or higher.² Learn more about the difference between payday loans and personal loans.

Spot loans can help you out in a financial pinch, but they can be expensive in the long term. A personal loan or credit card (especially one with a 0% APR offer) could be a more affordable option if you can qualify on your own or with a cosigner.

If you’re interested in a spot loan, review the terms and conditions of your loan agreement before you sign on the dotted line. Read over spot loan reviews of a lender, too, to make sure it’s reputable.

For more on last-minute financing options, learn about what an emergency loan is here.