The answer to the question “What is an online loan?” is pretty much exactly what it sounds like: it’s a loan that’s applied for, approved, managed and paid off through the internet. Technology has made it possible to get access to thousands of dollars just by sitting at your computer, or picking up your smartphone, and entering your personal information!
That first question is pretty easy to answer, but soon we find ourselves with more questions, like: Who can offer them? What kind of terms do they offer? How do I find one?
Good news – we’ve got the answers.
Online Loans Have Become Indispensable In the 21st Century
The online loan experience can be faster than paper-based processing and greatly simplify the application process. Good news spreads quickly – that’s why increasing numbers of traditional lenders are getting with the times and setting up online storefronts. Some online loan providers, called financial technology companies, do all their work exclusively online with no brick-and-mortar option.
What Exactly Is an Online Loan and Who Is Allowed to Offer Them?
Basically, any type of loan offered on an internet-based portal is an online loan. This includes loans from alternative lenders, banks, and credit unions.
Online loan companies tend to focus on particular types of loans. Some offer personal loans, while others focus on mortgages and mortgage-refinancing. They were built for speed and convenience, using digital communication channels, alternative rating and approval metrics, and often automated approval processes.
The diversity of offerings and market competition on the internet gives consumers the opportunity to find loans for whatever they need.
What Can I Use an Online Loan For?
Bank loans are often used for a specific purpose, such as building a house or investing in a business. Part of the bank’s process of evaluating a borrower is determining if the borrowing purpose increases the likelihood that the loan will be repaid.
A home mortgage, for example, helps a borrower build a stable life and strong equity. An auto loan can help the borrower get to his or her job, which can lead to stable income. Plus, if the borrower has a secured loan, the lender can take possession of the house or car if the borrower can’t pay off the loan – so there’s even more incentive for the borrower to repay.
On the other hand, online loan companies are a little more open-ended. Many of them focus on unsecured loans, like credits, that can be used for any purpose the borrower chooses. So when it comes to an online loan, you can probably use it for almost anything – with the exception of education expenses.
Credit Scores and Interest Rates
Just like more traditional creditors, online loan companies have their own rules for eligibility and credit score requirements.
Online loan companies often use a soft credit inquiry to see if you pre-qualify for a loan. The advantage is this: a soft inquiry does not affect your credit score. Banks will traditionally do a hard inquiry when you apply for a loan with them.
Even if you have a poor credit score or a short credit history, you might be more likely to get a loan from an online loan company.
And because online loan companies don’t have to suffer the cost of physical locations, they often pass along those savings in the form of lower interest rates and fees. They can also make approval decisions and get the money to borrowers more quickly. Essentially, an online lender could mean quicker, cheaper money for you.
Just be sure to steer clear of payday loan companies, who are known for their predatory tactics and high interest rates.
The Perfect Online Loan Could Be Right Around the Digital Corner
Searching for a loan online means you can quickly submit multiple pre-qualification applications to quickly find the rates and terms. Some online platforms will even take care of the comparison directly and show you the best results for what you need. That could mean money in your pocket faster than you thought possible.
Reputable online platforms know the importance of their reputation. In the modern age, a company’s status depends on the reviews it receives online, as different statistics from recent years show. Typically, you’ll see badges on their home page that highlight reviews, ratings – but don’t hesitate to peruse other reviews as well.
And rest assured, online platforms know keeping data secure and private is a top priority. In order to keep their business running, they’ve got to protect their customers and applicants.
For business owners, individuals, and everyone in between, a digital loan platform can add real value.