Published in July 28, 2021
Online loans are conceived as more convenient than traditional loans and you’re usually guaranteed to receive money in your account within 24 hours, if not less.
Before having the option of online loans, people had to go to apply for a loan with a bank. This is hardly the case anymore, as most financial institutions have moved online purely out of convenience. You can now get either a small loan or a home mortgage all on the internet.
Although the ability to receive a loan online has made it simple for people to get money, it’s important to remember that not all online loans are created equal. It’s difficult to detect scams when working with an online-only lender that you’re not very familiar with. Here are some tips to remember when applying for an online loan.
An online loan is one that you get from any lender that operates online. That means you could get an online loan from a traditional lender, whether you work with a bank or credit union, as well as from online-only lenders.
Online-only lenders will most likely not have a physical application, which means you’d have to complete the entire application online. Some institutions may require you to start an application online but finish the remainder of the process at one of their branch locations. This is handy to remember when you’re comparing different lenders.
There is nothing fundamentally better or worse about getting a loan online as opposed to in person. You can get the same types of loans: payday loans, instalment loans with or without a co-signer, lines of credit, and larger loans like mortgages.
Pros of online loans
There are a few reasons why you might prefer getting a loan online instead of from a lender with physical locations. Here are some advantages of online loans:
– They’re convenient
– Makes it easier to compare rates of online lenders
– They may have more lenient credit requirements
The biggest benefit from online lenders is convenience. You can apply at any time without having to worry about going into a physical branch within business hours. Additionally, they’re also a lot quicker than traditional lenders, as you can get approved and have the money in minutes.
Online lenders also make it easy to compare loan offers as soon as you get them, as many lenders grant you estimate rates without having to apply. This is also beneficial for protecting your credit score as the lender wouldn’t be making a hard inquiry (hard pull) on your credit report. Hard inquiries occur when you apply for credit and they show up on your credit history.
There’s also the option of finding online lenders who tend to be more lenient with whom they loan to. That means you can still get a loan regardless of your credit history. Although, it’s important to remember that leniency can make it harder to detect legitimate lenders and scams. Leniency can also result in people taking on a larger loan than what they can comfortably afford.
Cons of online loans
Online loans may also include disadvantages, those could be:
– Higher rates and potential higher minimums
– A greater number of unsafe lenders/ scams
The convenience of online loans may come along with higher interest rates. In the case of short-term payday loans, you may end up having to pay an interest rate of anywhere between 40% or more. Additionally, it’ll be rare to find online institutes that’ll lend you a loan of less than $300.
The most important concern to always keep in mind is lenders’ legitimacy, therefore you should always research a lender before submitting any personal information.
If you’re considering getting a loan, it’s best to make sure you need one. That is because many online interest rates on short-term loans are high.
The best way to start when needing a loan is by contacting your bank or credit union. Many institutions also allow you to start your application online. With some organisations, you may be eligible for lower rates depending on how long you’ve been a customer for, otherwise, never hesitate to negotiate for better rates.
You can get an idea of what to expect from checking lenders’ websites. That’s because the majority of online lenders will most likely provide their loan rates ranges on their website.
If you find a lender with suitable rates, request a loan estimate. This estimate helps predict the rate a lender expects you to receive if you properly apply for a loan of your specific amount. You’d also be told if you’re eligible for a loan when asking for an estimate.
Plan a thorough budget with Moneysmart to understand your spending habits and how much you can afford for your monthly payments.
To get a loan estimate, you will likely need to provide the following information:
– Email address
– Physical address
– The loan amount
It’s best to research a lender thoroughly and compare reviews before providing any personal information.
The loan rates you will get vary by lender and according to your situation. Here are some popular online lenders that could help you:
– Jacaranda Finance
– Nifty Loans
– Wallet Wizard
– Latitude Finance
– Money Me
Before applying for a loan, you have to check if you’re eligible for one. It’s an easy process and similar to the process of requesting a loan estimate. You will need to provide your name, address, contact information, loan amount and income.
The lender will then do a credit check and potentially another background check to decide if they are willing to lend to you. With an online lender, checking your eligibility takes less than one or two minutes.
Getting approved means the lender is willing to give you a loan, as well as the rate for which you have been approved. You will need to formally accept the offer by filling out another form. This final application allows you to provide your bank details to receive the loan money.
Getting rejected for a loan happens often and it doesn’t mean you won’t be eligible for one elsewhere.
Next, try to understand why you were denied. If it’s because of your credit history, remember that some lenders have more lenient lending requirements. It’s helpful to research more and request other estimates. In some cases, you can get denied for incorrect information a lender would’ve found during a background check, therefore, contacting your lender for clarification may work in your favour.
Getting denied by a lender can also hurt your chances of getting a loan from another lender, so don’t apply to loans that you think you have little chance of getting.
You could also consider having a co-signer if your credit history is poor. Having a co-signer with better credit may allow a lender to reconsider. All you’ll need to ensure is that your co-signer can afford the loan too. They would be just as responsible as you.
While we at Tippla will always do our best to provide you with the information you need to financially thrive, it’s important to note that we’re not debt counsellors, nor do we provide financial advice. Be sure to speak to your financial services professional before making any decisions.
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