Pros and cons of online loans: what you need to know
If you are in the market for a loan, chances are you may be a little confused as to where to turn. The online marketplace is saturated with offers, interest rates, APRs, and financial jargon designed to target you, but how do you know the providers who are really trying to help you from those who want to hide their commissions in small print?
Our guide is going through everything you need to know when thinking about applying for a loan online. We have kept this balanced and informative to help you make a safe and informed decision about your future finances.
Let’s start with the pros of online lenders:
You can compare your loans online
When shopping around for loans, the biggest advantage of an online lender is that they can show you the best (as well as the cheapest – it’s not the same) option for you! Many suppliers are willing to do this compare loans online for their customers and again tell them if a competitor or other lender in the market is a better or more suitable alternative. Deciding to compare loans online can also make you feel more confident in the financial product you have selected or lead you to a better option for your finances.
With modern technology, loan comparison with direct lenders or price comparison websites are unlikely to leave a survey mark on your credit score. This is because sophisticated software is able to use the data provided by a consumer to assess his creditworthiness and reliability as a borrower. This is known as a soft search and it simply matches you with your credit file.
The application process is so convenient
An online loan naturally has a completely online application procedure. This means it can be completed at a time that suits you, and while this fits into our on-demand lifestyle with our imperative need for total flexibility, it also gives us the opportunity to leave the app and come back if we feel need to. This convenience, combined with access to information, can help educate consumers about the responsibility of taking out a loan and what it could mean for your future finances.
In turn, online loans have the same advantage as anything on the Internet – it’s 24/7. That means if you’re applying for a loan because you need money fast because something went terribly wrong on vacation and you don’t have the reserve funds to cope, a personal loan might be there to help you, even if you’re somewhere along the equator!
Many online direct lenders, particularly those operating in the consumer credit personal loan market, will be able to offer their customers pre-approval based on a soft search. This is less likely to be a guaranteed option for consumers who have bad credit, but for those who are accepted it provides a good understanding of your standing and creditworthiness.
Also, submitting for pre-approval doesn’t affect your credit score, it just lets you keep track of the offers you have. Consumers can still shop around for a loan that suits you if you have the time to do so.
Extremely fast access to cash
Using online lenders is an extremely efficient process. When you have decided that you need a loan to make the necessary purchases or move forward in your life or even to cope with an urgent financial emergency, you can apply and get the money into your account on the same day. This quick action allows consumers to stay dynamic and react quickly to a situation at hand, which could protect their credit even in the long term.
An online lender is also more likely to work transparently and keep their customers updated with the application process. Many send text messages and emails just to keep people updated on the status of their loan application.
Quick access to money is especially beneficial with improved or increased online lending limits. Fintech and direct lenders they are experiencing a recovery, while traditional banks are experiencing a decline and contraction in activity. This means that they are a little more stingy with how much they are willing to lend their customers, while online lenders have so much support from investors at the moment that they are more likely to give you access to all the funds you need. This can be particularly beneficial for those looking for debt consolidation or higher value secured loans.
Improved accessibility for people who have been denied credit
As has already been established, the decline in activity for banks as a result of increased competition, traditional sources of credit are more risk averse than ever. This means that they can raise their prices to cover the cost of lending to someone who may not have the best credit history or refuse to work with them at all.
As with all markets, including retail, there are so many other unique and specialized options and products available online! This also extends to the loan market; There are online lenders that specialize in certain types of loans, including those best suited to borrowers who have not previously had a perfect loan repayment history.
Cons of using online lenders
Trust online lenders
Banks, construction companies, and credit unions are typically the names we trust because we see them all the time, pass their branches on the street or see commercials on TV since we were young. Long-standing institutions have usually built a reputation for themselves, and whether that is a good or a bad reputation doesn’t really matter, because we inherently trust the names we know.
On the contrary, there are so many new players and fintechs available for online loans. This makes it a bit daunting and scary, especially if you are applying for a loan for the first time or are particularly nervous about working with a cowboy.
How to get around it? Check their background. You can verify they are registered with the necessary regulator to make sure they are a compliant and accountable lender to still take advantage of the impressive rates available online.
It may be best to go directly to your current bank account provider
One of the biggest benefits of opting for a traditional bank for a loan is that if you already have an account with them, you may get additional benefits. If you have a checking account, checking account or even a savings account with a provider, they will quickly be able to assess your creditworthiness as they have experience and first-hand knowledge to interpret your relationship with money. If this is good and you have maintained good credit by repaying your loans, credit cards and overdrafts in due time, you may be offered incentives and other offers when you apply for a new loan. It could be something like months without interest or cash rewards.
Sometimes, this process is even simplified and can also provide quick access to cash, because the bank already has some of the information it needs available. In turn, going directly to an online lender is generally the quickest way to access the money you need.
Overdependence on price comparison and “best value for money” options
More and more often in our society we are becoming obsessed with the cheapest options and paying the absolute minimum we can. This is absolutely fair, especially when you consider how much the cost of living is rising while wages remain the same. We’re just looking for more money for our money, no matter what we’re paying for.
When it comes to financial products, this could be a little more dangerous. Everyone hates having to pay for the privilege of having access to credit, but it’s inevitable (all banking is built on it), but sometimes we may get a little too dependent on information. price comparison websites Give us.
Realistically, these websites do not provide completely unbiased information, as they are sometimes sponsored by some vendors who offer to be on top of certain search queries or results, despite not being the best option.
In turn, we depend on the information provided to us rather than our own research, which is equally important (it is vital to check consumer credit websites on consent on a lender). We do not consider aggregates who abstain or intentionally do not subscribe to price comparison websites, although they may be a better option for some consumers.
Sharing of data
In a post-Cambridge Analytica scandal world, we are all becoming more and more aware of what our data is used for and a little more stingy about the data we voluntarily provide to companies or databases. This includes price comparison websites, where the amount of information required will vary.
The unique thing about applying for loans online is that different lenders (and brokers or services) can request quite personal information, including details about your financial history and what we might consider the most private and confidential things about ourselves.
Final words …
It is important to note that there are risks associated with all financial products and commitments, including loans. Financial knowledge and confidence in dealing with financial issues are at an all-time low for Millennials and young people. This could be one of the reasons why the same demographic is in debt cycles and more frequently seek debt help. In turn, it just goes to underline how important it is to fully understand the loans and financial arrangements that you enter into, whether they come from online lenders or from more traditional means of supplying credit, such as banks. This can help you make sure you can stick to a repayment schedule and have a positive experience with your loan. Depending on how you like to consume information, an online loan could provide you with another, small advantage; the information is displayed in a simple and concise way and all information is available on a website. If you go to the bank for the money you need, some things may be lost in translation into verbal communication and the whole process is more disjointed, which leaves a little more room for error.
Adhering to a loan agreement is the responsibility of consumers and it is important to maintain a positive and healthy credit score that repayments are met, wherever you decide to get your credit. However, going online for a personal loan gives you the opportunity to compare the costs of different providers to make sure you are comfortable with repayments.