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Before the age of the Internet, if you wanted to apply for a loan with a financial institution, you would need to make time in your day to go out in person to a bank, credit union, or some sort of storefront lender. Today, with the advent of online lending, your options may extend further than wherever you’re able to travel to in person.
When people apply for online loans, computer algorithms can quickly determine if their applications will be approved. Many are choosing to apply for online loans, preferring the convenience and fast application process that an online lending company can provide. Today, we’re going to take a look at some of the benefits of online loans and give some useful tips on how to choose an online lending company.
What is Online Lending?
If you’re looking for a loan, you can find financial institutions that offer loan services online. Some of these companies also serve customers through physical locations known as storefronts. An advantage of using online lenders is that borrowers can apply for loans on websites at their convenience regardless of their hours of operation. With online lenders, you may find that the application process is simple and quicker, since you won’t have to visit a storefront.
Many online lenders will set their borrowers up on a payment schedule that often matches with their pay dates. Depending on the type of loan, repayment may consist of a single payment or multiple payments.
What are the Potential Benefits of Online Lending?
Before we get into some of the important qualities to look for in an online lending company, it’s important to establish why you’d actually want to consider applying for an online loan in the first place. Here’s a list of some of the benefits of online loans.
1. Fast Application Process
Online lenders are generally able to keep the application process efficient. It can even be as fast as just a few minutes to fill out an online loan application. The application review as well as the funding process are all completely online.
2. Convenient & Simple Process
Since the online lending process is web-based, a borrower does not need to physically visit the financial institution to apply for a loan product. This saves significant time and money that may otherwise be spent on commuting to a lender that provides storefront services but does not lend money online.
3. After-Hours Customer Support
Online lenders typically offer customer support past normal business hours to answer questions and assist the applicant with any concerns regarding the application process. Some of the well-established and best online loan companies may even offer round-the-clock support.
Your transactions, payment amounts, and dates are often available through an online interface. Such information is generally updated from time to time, which helps to keep the loan process transparent.
What to Look for in an Online Lending Company
Now that we’ve discussed some potential benefits of online loans, it’s time to take a closer look at some of the key factors to consider when you’re looking for an online lending company.
One of the first things you’re going to want to look for in an online lending company is how reputable of a lender they are. The truth is, there are plenty of dishonest or even fake financial institutions that exist in the online lending sphere, and if you’re not careful, you can get caught up in a damaging situation.
This may leave you wondering how to check if a loan company is legitimate when borrowing online. Well, the good news is that with online lenders, it’s generally fairly easy to get a good idea of what type of reputation they have just by doing a simple online search for genuine reviews on the company. Read what their past customers have to say, make sure you don’t see any red flags or patterns of negative behavior, and compare the reputations of different competitors.
2. Simple Application and Transparency
Like we mentioned, one of the most significant benefits of borrowing money online is the convenience of the application process. The convenient nature of being able to apply online means that you don’t have to spend your time traveling to a storefront and waiting in line to speak to an associate. But the entire borrowing loan process shouldn’t just be about convenience and getting quick loans online. The process should also be transparent.
What does transparency mean in this context? Well, for starters, important information like the rates and terms of the loans that the online loan company offers should be clear to see on their website. On top of that, once you actually start the borrowing process, the relevant and important information of the online loan you’re being offered should be spelt out clearly in your loan agreement. There should be no hidden fees, and if there’s any aspect of your loan or the process that’s confusing to you, you should be able to easily get in touch with a customer service agent to help you out.
3. Excellent Customer Service
Speaking of customer service, clear and consistent communication should be one of the pillars of a reputable online lending company. Their contact information should be easy to find, their response time should be quick, and they should always do their best to help you in whatever way you need.
Doing some research on different online lenders should help to give you some idea of the level of customer service they offer, but on top of that, make sure they’re upholding the important aspects of good customer service throughout the borrowing process. Any lending company that isn’t interested in helping their customers should be one to avoid when searching for the best online loan company to borrow from for your situation.
4. Rates and Terms
Paying close attention to the rates and terms of the online loans a financial institution offers is going to give you an indication of whether or not you’ll be able to afford the loan in the first place. Just remember that even if you’re offered a loan, you have no obligation to accept it. And you definitely shouldn’t be accepting any loan that you can’t afford.
Before applying for an online loan, do some research and compare the rates and terms of loans offered by different online lenders. From there, you can narrow your potential options of online lending companies and online loan services down to what best fits your particular situation.
Different Types of Online Loans
Based on your needs, online lenders may be able to offer credit in various forms. Here’s an overview of a few common types of loans:
1. Installment Loans
2. Payday Loans
Payday loans online are short-term, small-dollar loans that are paid in full on your next pay date. The maximum amount you can borrow for a payday loan is different in each state and varies depending on the lender. An online payday loan should typically include all the features of a storefront payday loan while also providing the comfort of transacting online. In some cases, these may also be referred to as cash advances.
3. Line of Credit
An online line of credit may allow you to have more control over your cash flow. When you need money, you can borrow any amount up to your available credit limit without having to apply for a new loan, as long as your account remains in good standing. If you withdraw all your available credit, you can’t borrow more until you pay down your line of credit. The amount of principal you repay becomes the amount of available credit you can then draw down from.
How to Manage Finances to Repay your Loan
When you are borrowing money from an online lender, you need to also plan for repayment. Since online loans tend to be short-term and have to be repaid within a specified time, you’ll have to be prepared for the financial commitment ahead. Make sure you can pay your loan on time or make early payments whenever possible. If you miss a payment, you may incur late penalty fees.
Set aside a portion of your earnings every month before you start spending on other personal needs. Plan ahead for the upcoming expenses and limit your spending for that month. It’s important to account for essential expenses like rent, utilities, phone, food and so on.
To ensure you have enough money to make your payments, add a reminder to your calendar to check your bank account at least a day before your payment is due.
Choose an Online Lending Company Carefully
Online lending has done a lot to make the borrowing experience more convenient and streamlined for the average person. While they may be more accessible than ever, applying for a loan is a big financial decision that shouldn’t be taken lightly. Getting in over your head by taking on more debt than you can afford is a dangerous game; one that can lead to long-term financial problems that can be tough to get out of. Make sure you approach the process of applying for an online loan carefully and always do your research. Whether you prioritize borrowing from lenders that can provide quick online loans, lower rates and easy to understand terms, top of the line customer service, or a mix of all the above, ensure that you safely pick the online lending company and loan product that works best for you and your particular situation.
To understand and learn more about online loans, explore our resources section. We have detailed guides that can help you to understand the different online borrowing options that are out there, as well as other useful personal finance information.