Online banking isn’t a new concept. It’s been there for years. And now, thanks to advancements in technology and the availability of lenders, consumers can borrow money online.
The main advantage of online loans is that you can apply for them and get the money deposited in your bank account at the comfort of your home. Not only are they convenient, but also some lenders offer affordable rates and have less strict requirements for eligibility. Read on to learn more about online loans.
What Is an Online Loan?
It’s a loan that is offered online by an online lender or a traditional lender through their online department. Previously, the term online lender described government loans, credit unions, and other credits with a similar structure as that of the bank but had a different source. However, these old-style loans are now viewed as part of the traditional lending market.
Most times, these loans are unsecured personal loans. However, some lenders may add other loan products to their offering. Similar to traditional lenders, online lenders have varying requirements for their loans. It’s why you should conduct a ‘soft search’ on different lenders to see if you match their eligibility criteria and credit score demand.
What Is the Difference Between an Online Loan and a Traditional Loan?
Now, many consumers prefer online loans to traditional loans. As such, some traditional lenders also expanded their lending services online. However, there are some things with online-only lenders that may or may not make them attractive, depending on what you prefer. Here are the differences between online lenders and traditional lenders;
- Everything Is Done Online- with a traditional lender, you’ll walk into their offices and talk to a banker or a customer representative in person. However, with an online loan, everything is done online. And the lender may offer phone assistance if need be. If you live far from a bank or want to avoid in-person contact, an online loan may be good for you. But, if you want face-to-face clarification, a traditional loan will be better.
- Online Loans Have Lower Interest Rates- the best thing about doing things online is that it eliminates the need for hiring and maintaining staff, which is costly. As such, you can expect a lower interest rate on online loans. But this isn’t always the case. Therefore, ensure that you compare the rates offered by both an online and a traditional lender before applying.
- Application and Reviews Are Quick with Online Loans- online-only lenders use automated systems that help in the application and review of the loan. There’s less paperwork with online loans, and the lender can use a program that verifies things quickly without needing another person to review.
- Target Loans with Online Lending- personal loans are the most common types you can find online. However, some lenders may also have other loans that are designed with borrowers in mind. It’s easy to find a lender suitable for your needs. For instance, some lenders offer bad credit loans while others are suitable for borrowers with excellent credit.
How Fast Can I Get an Online Loan?
Emergencies are unavoidable. And most people don’t plan for them. When you have an emergency, you will need quick access to money. And that is where online lending comes in. You can submit several prequalification applications to multiple online lenders to find one that’s suitable for you.
Some lenders offer same-day funding. So, once you are approved, the funds will be deposited the same day in your bank account. However, most times, it will take 3-5 business days to get the money once your application is approved. The exact timing depends on your bank and how fast the lender approves your application. Also, if you delay uploading the documents required, you’ll have to wait a long time.
Again note that some traditional lenders may deposit the money on the same day of your approval. However, because reviewing the documents takes time, the process may take longer.
Can I Get an Online Loan with Bad Credit?
Yes. But you will have to look for an online lender who offers loan products to those with bad or new credit. Bear in mind that most will need a credit score of between 500-600, which could mean you have a poor or fair credit score.
Generally, those with a poor credit score and low income may find it hard to qualify for a loan. And even if they get approved, the lender may charge very high-interest rates for a small amount of money.
We advise that you wait and improve your credit score before applying for a loan unless you have an emergency. Or borrow the funds from your friend or family member instead of taking the formal route. Also, you can request a friend or relative to cosign for you if they’re creditworthy.
How Safe Are Online Loans?
Safety is always a concern with everything that’s done online. Thankfully, there are many legit and trustworthy online lenders. But, since scammers are there, watch out for red flags, for instance, someone guaranteeing that your loan will be approved regardless of your credit or income.
Remember to read reviews of a company and check it on the Better Business Bureau. Also, avoid taking loans with high interest rates, like 60% to 200% APR, as they may be costly to repair.