Online loans are like takeaway – relatively fast and convenient. But when grabbing a quick meal, it’s always a good idea to put in some research beforehand to avoid eating at a suspect venue and regretting the decision later. Continue reading to learn more about how online loans work, the benefits of using them compared to traditional lenders, and how to find the most recommended loans.
How do online loans work?
An online loan is a desirable option when the pressure of sudden, unexpected expense, a pile-up of bills, or even the lure of too-good-to-wait-for items mean that you need extra money on hand, fast.
Depending on the type of loan – whether secured, unsecured or other – you may have to meet certain eligibility and credit requirements as part of your online application. This often means making a hard credit inquiry, which can have some negative impact on your credit scores. Use a soft credit inquiry, if this is offered by the lender, to see if you prequalify without impacting your credit.
In addition, an online application will also require you to upload documents to verify your identity and prove your income. These might include a copy of your government-issued ID and pay receipts or tax returns. Once you have received and accepted a loan offer, the funds will be deposited directly to your bank account.
What are the benefits?
There is no doubt that the convenience factor of online loans makes them extremely desirable in a host of situations. They can be especially useful when an emergency arises and you are short of funds, as well as for that extra cash to fund home improvements and other projects.
When all you have to do is fill out an online application and be guided virtually through the entire process – from prequalification to money transfer – you are saved from travelling to the bank and an awkward face-to-face exchange.
Another advantage of choosing an online loan are the lower rates and less strict requirements than traditional lenders, allowing you to borrow money with a poor credit score. At the same time, the extra time that an online application will give you will allow for extra effort to be put into researching the terms of the loan to make sure you have all the information.
How do I find the best online loans?
As with discovering the best take-out meal in town, there are invariably several factors to consider when trying to find your ideal online loan option:
- Identify loan type
It is essential to identify the best type of loan for your situation, as each will suit certain borrowers. Some online lenders specialize in the best online loans, with less strict requirements for people with poor credit. Other lenders offer loans targeted at people with excellent credit.
Keep in mind that if you have a lower score and income it may be difficult to qualify and lenders that will allow you to qualify probably have high interest rates and loan amounts. Aim to improve your credit score before applying to avoid this pitfall.
- Check the rates (APR)
Whilst there is the potential for saving by using online-only lenders – as more traditional lenders often require staff, physical branches and higher running costs to function – this is not always the case. Before applying, make sure to check and compare the rates given. Be wary of companies with especially high interest rates of 60-200% APR, which may display lower preliminaries but can end up being costly and difficult to repay.
- Be cautious
Trustworthy online lenders exist, but it is all to easy to fall prey to scammers. Watch out for requirement-free offers that guarantee money regardless of your credit or income. Looking up third-party reviews can give you an indication of the quality of a lender. Consider such aspects as customer service and ease of contractibility.