Online lenders have disrupted the financial industry where traditional lenders have dominated for years. Today, unconventional lenders have online platforms where customers can access credit remotely. Unlike in the past where borrowers had few options after the banks said no, today it’s quite easy to get a loan from unconventional lenders.
Getting an online loan from the comfort of your home is not only appealing but it can also help you save some money in fees. If you have a busy schedule but you still need some immediate cash, online loans can offer the convenience desired.
However, online lenders have different rules and mode of operation. This means some will offer better loans than others and it’s upon you to get informed about your lender before doing business with them. If you are keen and patient, you can get a long-term loan with low-interest rates and the repayment period is flexible. On the other hand, taking a short-term loan when you are dealing with long-term financial needs can leave you in a bad financial shape.
In this article, you’ll learn how you can get a good online loan and avoid being trapped in cyclic debt.
Choosing an online loan lender
Online lending has grown to become one of the most competitive businesses and finding a lender is quite easy. However, the hard part is choosing who to work with since there are countless banks, private lenders, credit unions, and realisticloans -online loan brokers who are fighting for your business.
To ensure you are dealing with a legit lender, ask your friends and family members to recommend a good service provider based on their past experience. It’s always good to ask a few professionals like lawyers and accountants but you should beware of people who will recommend a lender because they get a commission.
Before you work with a lender, check to ensure they are authorized to operate in your state of residence. Besides checking with BBB, you can always check their online profile and the reviews they’ve received from previous customers.
If you can get a lender who has been in the lending industry for a long time, you are safe from fly-by-night operators who can mess up your financial profile. When a company has been around for many years, they put significant effort to make sure their reputation isn’t damaged.
While experience and reputation of the lender are critical, you should always read the loan agreement. Take time to read and understand the fine print in its entirety to ensure that you fully understand your rights and obligations. Have a keen eye for hidden charges to ensure you only pay what is revealed on the APR.
Types of personal loans
Basically, there are secured and unsecured loans but there are many sub-categories that you can consider depending on your circumstances.
Secured loans are designed to offer better terms and a lower interest since you have to provide some collateral like your home or vehicle. On the flipside, missing the loan payments can easily make you lose your valued asset.
A pawn shop also provides secured loans where you have to deposit your valuables in exchange for a small percentage of their value. In the event where you’ve defaulted on the payments, the lender will be quick to seize your valuables.
Unsecured loans are offered without any collateral and defaulting doesn’t risk your vehicle or home. However, it’s not easy to qualify for these loans and they also come with a high-interest rate.
The most popular form of unsecured loan is the credit cards. Besides being flexible, credit cards are easy to apply and once approved, you get immediate access to credit. On the downside, some credit cards require good credit scores and they can come with high-interest rates plus some several penalties.
Credit union loans, as well as small bank loans, offer the lowest interest rates among most unsecured loans. But to get approved, you need to have near perfect credit scores or have a stable income. But you can also ask a cosigner to help you in getting the loan if your credit scores are not good enough.
Peer to peer loans have been around for some time now and they link unrelated individuals for financing. The peer-to-peer platform acts as the link between the lender and borrower depending on the loan terms and the risk involved. Since these platforms use AI to underwrite the loans, the operating costs are low and this enables them to have better interest rates and compete with other loan options.
The era of online loans has made access to credit relatively easy. This has resulted in several financial difficulties when people take loans that don’t match their financial situation. Before you apply for a loan, ensure your financial muscle can comfortably handle the required loan repayments.
One of the best ways to put your finances in order is by creating a budget that will help you maximize every coin. When you know how much money you have available every month, you can make an informed decision about the loan you can take.
While low credit score loans seem appropriate for some people, they can leave you in a desperate situation if you are not careful. As a rule of thumb, you shouldn’t overestimate your capacity to pay the loan on time.
Because there are tons of lenders available, take your time to figure out the one who can give you a loan that is tailored to your financial status. At times, it will be easier to deal with small and medium-sized lenders as opposed to working with big corporations. Basically, it’s harder to negotiate better terms with a huge multinational.
Online loans offer a lot of flexibility and it can help you get the money quickly. However, care must be taken when getting online loans. You can avoid getting into cyclic debt that is popular with most payday borrowers by becoming a responsible borrower and staying on top of your finances.