Online Loans: Why and How to Borrow Online
Online banking has been around for many years, but online loans have adapted more slowly. Fortunately, there are now many good online lenders to choose from. It is similar to obtaining a loan elsewhere, but it is much more convenient. You will need to provide personal information such as your Social Security number and address and, depending on the lender, information about your work, income and expenses. To get started, simply choose a lender and apply; The process should only take a few minutes.
Online Loan Benefits
The new generation of lenders is focused on making loans as easy as possible. Online lenders can tell you almost instantly whether or not you've been approved, how much you can borrow, and what your payments will be.
Most traditional banks are different; Even if you fill out a form online, it may take a while 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 credit unions with physical branches.
You also benefit from better approval chances with online loans. Banks and credit unions have been cautious over the years. It's easy to get a loan if you have good credit, but if you're still building credit or have been through tough times recently, a standard FICO score won't help you at all.
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 ratio, and even data from your social media.
Most online loans are unsecured, which means they do not offer collateral to help with approval. This can make them more secure than borrowing against your assets. If you default on an unsecured loan, your credit score will drop, but your car will not be repossessed and you will not face foreclosure.
The best online loans come from non-traditional lenders who focus solely on making a specific type of loan and do not offer checking and savings accounts, credit cards, or business services.
The first lenders in this space were peer-to-peer lending (P2P) services, and these are still great lending options. P2P lenders started with business models similar to eBay, where anyone could apply for a loan by creating a public list asking for money, and anyone could offer a loan.
Lenders would choose an interest rate they wanted to earn, and loans would be financed at the lowest interest rates available.
Avoid Salary Loans
When looking for loans online, you will find many results for loans that are essentially payday loans. These are short-term, high-cost loans that generally result in a costly debt spiral. You can identify these loans in the following ways:
- Short terms: Payday loans are paid off within a month or more. You should look for loans that you make monthly payments for over several years and that you can repay in advance without any prepayment penalties.
- High interest rates or fees: Payday loans will be dramatically more expensive than market lenders. You can get a credit card with a 20% APR, and many online loans charge substantially less. If you're going to pay more than that, you're probably getting a bad deal.
- No Credit Check: You need decent credit to get a decent loan. Anyone who lends to you without checking your credit is at risk and expects to be compensated for it.
- Upfront - payments: Don't borrow from an online lender that requires an upfront payment. Legitimate lenders may charge fees, but those fees come from your loan funds. Prepaid scams are notorious for asking you to hand over money and then not providing anything in return.
The bottom line
To get a good loan, you need to shop, and online lenders should be included in your search. Stick with reputable lenders and you can avoid problems. Banks still provide valuable and convenient services, but they are not always the best option for loans.
Enjoy Watching This Video About Loans
Source: BDO Unibank
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