An online loan is exactly what it sounds like—a loan that you can apply for and close online.
Online loans are much like traditional loans, with the major difference being their speed and convenience—online loans often tend to be faster and more convenient.
One of the primary advantages is the speed of online loans. In general, the process of applying for and receiving an online loan is faster than for a traditional loan. With online loans, both the time it takes to apply and the time it takes before you receive the money tend to be faster.
While it is difficult to get an exact prediction of how much faster online lending is than offline lending (since there can be a great deal of variation in both traditional and online loan processes), it is safe to say that, that online lending does not have the hassle of setting up appointments or going to branches.
Apply from anywhere—Online loan applications can be completed anywhere, giving applicants the freedom to choose the time and place that works best for them. That way, applicants don’t have to interrupt their busy schedules by making appointments at a branch.
Apply to multiple—Online loans also allow you to complete your application and receive quick responses. With such a rapid turnaround time, it becomes possible for a prospective borrower to apply to multiple online lenders in a short period of time in order to cast a wider net in their search for a loan.
This also allows you to keep your loan shopping within a short time span, thus possibly keeping your credit score from being marred by the presence of multiple hard inquiries. For some loans that require more comparison shopping, credit scoring companies will usually count multiple hard credit pulls as just one hard inquiry,1 so long as the customer does the loan shopping within a short period of time. This period ranges depending on the lender and the loan type, but it could be anywhere from 14 to 45 days.2
In this day and age, an online loan can be a good resource for people who want to reduce the time and effort of applying one at a time to different financial institutions. With busy schedules and a desire to receive funds without interrupting their fast-paced lives, people are becoming increasingly drawn to online loans.
If you’ve perused the Internet for lenders and loans, you know that there are many different lenders and loans out there. Before you decide which lender is right for you, you should do some research about them. Not every lender or loan will necessarily be a perfect fit.
Here are some of the types of lenders you can choose from:
Banks: While often perceived as the most-established lenders, banks frequently do not offer completely online lending. They may have an online application, but often the signing of documents has to occur in person or via snail mail.
Credit Unions: Loans from credit unions are increasing in popularity, according to WSJ.com.3 They do have some unique requirements, though: in order to apply for a loan, you have to become a member of the credit union, and to become a member you have to meet certain criteria. Depending on the credit union, these criteria may mean living in the same location or being part of the same job industry, or some other characteristic, according to About.com.4
Payday Lenders: Though online payday lenders are prevalent in the online loans business, it is important to be wary of such lenders because of their short-term nature and extremely high APRs.
Peer-to-Peer/Marketplace Lenders: These lenders are becoming increasingly more prevalent. The idea behind P2P lending is to match borrowers and lenders through online virtual marketplace platforms.
Personal Loan Lenders: These types of non-bank lenders are defining a new model for how people apply for and receive loans.
Applications will differ from lender to lender, but they usually consist of the following areas:
All of the above will help identify the applicant and determine the applicant’s ability to repay the loan.
Again, lenders may require different documents when reviewing a potential borrower’s application. At iLoan, the applicant will require the following documents in an electronic format:
Here are some of the questions to ask when evaluating an online lender:
Is this online lender reliable?
Finding a reliable lender involves looking at the various responses of previous customers to see how their experiences with that lender have been. Read a variety of reviews, and pay attention to more than just how much money they gave to a customer (which may affect the customer’s review).
Be sure to see whether customers believe that they got what they were expecting, that there weren’t any negative surprises in the loan terms or in hidden fees.
See whether customers had support when they needed it and whether they had a positive experience overall.
If a lender receives consistently positive reviews of these and other characteristics, it could be a signal that the lender is reliable.
Is this a safe lender?
Being a safe lender means not only being honest and reliable, but also providing a secure site for customers. Often, a good indication of whether a site is secure is a URL that begins with “https://”. These URLs will sometimes be accompanied by a lock icon, depending on the Internet browser. Check that the lock is green and locked, and accompanied by a URL that starts with “https://”.
Is this lender a payday lender?
Payday lending may put people who are in desperate need of cash into a situation in which they often can’t pay back the loans they’ve taken because the APR on the loans is high, potentially leading them into a cycle of growing debt.
Thus, it is important to stay aware of a lender’s practices and of the real cost of a loan, in order to avoid becoming trapped in such circumstances. You should also find out whether their practices are ethical and responsible, whether they have loyal customers, and whether their loan terms and requirements seem reasonable.
Watch out for payday lenders that hide information about the true cost of the loan or use deceptive advertising. Some payday lenders may make it seem like the interest rate is low, but then actually have a high APR or a short payment length, either of which could make it difficult for a borrower to pay back a loan.
In general, it’s important to ask yourself, “Does this loan type and repayment schedule fulfill my financial needs?”