Bank of America Direct Deposit Advance

A direct deposit advance is when a lending institution gives a borrower a loan in advance of their pending payday or other regular direct deposit into their bank account. This would be a small cash advance, redeemed by the bank on the date of the next direct paycheck or other deposit, along with the associated interest and fees. Many people find a direct deposit advance useful if they encounter unexpected expenses such as car or house repairs or short-term difficulty in maintaining regular payments such as utility bills. It acts as a way to keep the borrowers cash flow healthy until their next payday. It is a short-term loan, of usually relatively small value, the amount depending on the size of your regular paycheck or other regular direct deposits to your account. The key for many borrowers is that a direct deposit advance, just like a payday loan, does not require a traditional credit check. The main difference between a direct deposit advance and a payday loan (insert link to page) is that the lending institution will be the borrower’s bank, rather than the typically small stores or franchises that offer payday loans and the criteria for the loan may be more difficult for a borrower to meet.

The key is to this loan is that the borrower’s paycheck or other regular income must be directly deposited into their checking account with the lending institution on a regular basis. In order to qualify for a direct deposit advance one or all of the following criteria usually need to be met by the borrower’s checking account:

1. Receives at least one recurring electronic direct deposit of $X (amount set by each lending institution), of say $100, each month;

2. The recurring electronic direct deposit is from a third party, for example, an employer or outside agency e.g. paycheck, benefit income, tax refund, expense reimbursement, interest or dividend payment;

3. Has been open with the lending institution for at least one month;

4. Is in good standing i.e. has no restraints or outstanding legal issues, for example levies or bankruptcy.

Each financial institution will then set the percentage of the borrower’s regular income (direct deposits to their account) they are prepared to lend (the borrower’s credit limit). They may also set an absolute amount they are prepared to lend, for example, $500. This absolute amount may also change with time, for example, it may increase as the borrower’s time with the lending institution increases or the size or frequency of the borrower’s direct deposits increase. For example, if the borrower is paid monthly, and their regular paycheck is $2000, a financial institution would lend, say 50% of this, i.e. $1000. The direct deposit advance credit limit may be reduced by an excessive overdraft or returned items such as bounced checks. If the borrower obtains repeated direct deposit advances, the lending institution may also gradually reduce the amount they are willing to lend, in order to ensure the loan is eventually paid off.

The direct deposit advance (loan) will then be deposited into the borrower’s checking account. If the account has a negative balance, the advance will usually be applied to that balance before making cash available for withdrawal.

The figure for repayment will include interest and fees. Interest and fees will vary between lending institutions, with interest typically ranging between 10-20% per month. There is usually also a lending fee or finance charge, for example, an additional $2 charged for every $20 advanced, without regard to how long the advance remains outstanding. The size of the outstanding fees and interest will often be stated on the borrower’s regular banking statements, providing a record of the outstanding debt and giving a way to keep on top of this figure. Due to the nature of the loan i.e. unsecured on any sort of property and lent without a traditional credit check, the borrower will pay an interest rate usually well in excess of that if a traditional loan was available, therefore, the cost of borrowing should be balanced with the late fees that would otherwise be incurred by the borrower on regular payments such as utilities or credit cards.

The lending institution will usually take the owed amount automatically from the borrower’s checking account by taking any direct deposits that are paid into the checking account, for example, on the borrower’s next payday. If these direct deposits are not sufficient to cover the outstanding loan amount, they will serve as partial payment, and will continue to be taken until the total amount is paid in full. If this does not occur within a period set by the bank (usually around one month), the bank may automatically debit the outstanding balance from the checking account, regardless of the account balance, and the borrower will incur the associated overdraft fees, and may become temporarily or permanently ineligible for future direct deposit advances.

A borrower can often request a direct deposit advance online, at some ATMs, or by phone. This is an advantage over a payday loan, which usually requires a physical visit to one of the lending institution branches, along with evidence of identity, pay, and proof of income deposit to a bank account. With a direct deposit advance, the borrower’s bank will usually already have at least some of this information.