Benefits of Borrowing Online
The latest generation of lenders focuses on making borrowing as easy as possible. Online lenders can tell you almost instantly if you’re approved for the loan, how much you can borrow, and what your payments will be. Traditional banks are different; even if you fill out an application online, it may take some time to get a response because someone needs to review it. Online lenders also tend to offer better interest rates and lower service fees (if any) than traditional banks because they don’t have the same overhead costs as banks and physical branch credit unions.
You also benefit from better approval chances for loans online. Banks and credit unions have become cautious over the years. It’s easy to get a loan if you have an excellent credit history, but if you’re still building credit or have been through some tough times recently, the standard credit evaluation model may not work in your favor. Please note that online lenders are more likely to approve lower credit scores and use alternative information to assess your creditworthiness – such as utility payments, debt-to-income ratios, and even data from your social networks.
Most online loans are unsecured, which means you don’t put up collateral to help get approved. This can make loans safer than borrowing against your assets. If you fail to repay an unsecured loan, your credit score will drop, but your car won’t be repossessed and you won’t face eviction proceedings.
Online Loans
The best online loans come from non-traditional lenders who focus solely on offering a specific type of loan and do not provide checking accounts, savings accounts, credit cards, or business services. The oldest lenders in this space were peer-to-peer (P2P) lending services, and these are still great options for borrowing. P2P lenders started with business models similar to eBay, where anyone could apply for a loan by creating a public listing requesting money, and anyone could bid to lend. Lenders choose an interest rate they want to earn and fund loans at the lowest available interest rates.
Over time, the system became more complicated. In some cases, individuals are no longer the lenders – banks and other large institutions are the funding source behind many prominent lenders in the market.
Avoid Payday Loans
When searching for loans online, you will find many results for loans that are essentially payday loans. These are high-cost, short-term loans that typically lead to a costly debt spiral. You can recognize these loans by the following signs:
- Short terms: Payday loans are usually repaid within about a month. You should be looking for loans that you can repay monthly over several years, and that you can pay off early without any penalty.
- High interest rates or fees: Payday loans will cost you much more than online lenders. You might get a credit card with a 20% interest rate, and many online loans charge much less than that. If you’re paying more than that, you’re likely getting a bad deal.
- No credit check: You need good credit to get a good loan. Anyone who will lend you money without a credit check is taking a risk and will expect to be compensated for it.
- Upfront payments: Do not borrow from an online lender that requires upfront payment. Legitimate lenders may charge fees, but those fees come out of your loan proceeds. Advance-fee fraud schemes are known to solicit you for money and then provide nothing in return.
Conclusion
To obtain
For a great loan, you need to do thorough research, and you should include online lenders in your search. Stick to reputable lenders, and you should be able to avoid problems. Banks still offer valuable services and convenience, but they are not always the best option for borrowing.
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Sources:
- Fair Isaac Corporation. “How Lenders Use Credit Scores.”
- FDIC. “Marketplace Lending,” page 12.
- Consumer Financial Protection Bureau. “What is a Payday Loan?”
Source: https://www.thebalancemoney.com/online-loans-315614
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