A few years ago, it was unthinkable that a person could get an online personal loan because entering personal financial details form on a website was considered extremely risky. Today, however with the advancement in technology, encryption, financial regulation, licensing, and cybersecurity is it considered very safe for people to apply for personal loans from a reputable online lender.
What is an Online Personal Loan?
With a personal loan, financial institution allows people to apply for a loan online and borrow a fixed amount of money. The borrower agrees to pay back the principal amount of the loan including interest and any applicable fees.
These types of loans are normally used for home repairs, buying a new or used car and in some cases to consolidate debt.
How do Online Personal Loans Work?
Online personal loans work the same as any other type of loan. Borrowers will need to fill out a loan application form with their contact information, income and employment status, credit score, monthly expenses, etc.
During this process, you will choose the amount you wish to borrow. Once approved, you'll receive funds directly deposited into your bank account or via e-Transfer within a few hours or days.
Most online personal loans are provided in amounts of $100 to $1,500 with a short-repayment period.
What is the Difference between Traditional Lenders and Online Personal Loan Companies?
Traditional lenders are banks, credit unions, or other organizations with physical branches in your local community. These institutions usually offer lower interest rates because they can use the money for a more extended time.
Online lenders are companies that offer loans over the internet and make them available immediately, without having to wait days or weeks to receive your funds.
How Safe Are Online Personal Loan Processes?
The primary concern most consumers have with online personal loan applications is that you must submit your personally identifying information, such as your social security number, bank account information, driver's license, and other personal data over the internet.
While this is an understandable concern for many people, when you're working with a reliable online lender, your personal information is encrypted to protect them.
Online lenders that lend money to individuals have safeguards that ensure the protection of both parties all times. This includes fraud protection measures like anti-spam or anti-virus software, as well as encryption of your personal information.
The Benefits of Using an Online Lender
In-person loan applications can seem quite tedious, and you don't always get approved right away. That means you're often left waiting days, if not weeks, to hear back from the financial institution for approval. Then, it can take even longer to receive the funds you applied for.
The benefits of working with an online lender include lower interest rates, primarily because there is less risk involved with lending, and fewer fees charged by traditional lenders who may charge for processing the loan.
The Risks Associated with Online Loans
While some online lending companies were accused of offering high-interest rates to borrowers that exceed the legal limit, today’s fintech companies are licensed and regulated which means customers are protected from many of the questionable practices of the past.
There are newer companies that have big financial institutions investing in them which mean tighter due diligence, they also have local governmental regulators auditing these companies to make sure they adhere to all the licensing requirements
3 Steps to Find the Right Lender for You
When you search for an online lender, you need to be careful of whom you choose to partner with. Research the company you will be dealing with to make sure they are a safe, trustworthy institution.
Not sure how to find the right lender for you? Make sure to start with these three steps:
1. Research Your Options
If you go online to search for a personal loan provider, one of the first things that you should be doing is researching all of your options. This will not only help ensure that you're getting the best deal possible but that you are checking out legitimate financial institutions.
Search through online forums to see what others have had to say about various lenders, as well as the terms and rates that they offer.
Look for reviews on sites such as Google and Facebook, and when you come across any specific institution, run their name in the search engine, along with the term "reviews." This will lead you to consumer review sites that can help you decide if the institution is worth considering.
2. Run Background Checks
It is always a good idea to run background checks on any institution that you are considering. This will help ensure that they have the necessary licensing and indicate how risky it might be to do business with them.
You can visit their website first and then search for complaints against the institution online or through Trustpilot.
3. Research Interest Rates
Many fintech lenders may offer different types of interest rates, so it is crucial to determine your type of loan rate. This gives you a good idea about how much money you can expect to pay back in total over time and whether that seems worth it based on the amount borrowed.
Working with Online Lenders is now Convenient and Safe
The internet has made it possible for people to get loans without going through the hassle of traditional lenders. However, just because you don't need a brick-and-mortar location doesn't mean there are no risks involved with getting an online personal loan.
That's why it's crucial that you take the time to do your research and take your time finding the right lender for your online personal loans.