A online loan may be the solution?
You’re in a financial bind and need money fast. Or you may have a big-ticket purchase or project coming up and don’t have access to the funds to cover the cost. Either way, an online loan may be the solution to your problem.
They allow you to get the cash you need without jumping through a ton of hoops or waiting for several days or even weeks for a lending decision.
How Online Loans Work
Long gone are the days of driving from bank to bank searching for the perfect loan product or submitting applications hoping that you’ll get approved. Nowadays, online lenders allow you to explore your options, apply, and accept any loan offers that may be available to you at the tap of a fingertip.
In most instances, it only takes a few minutes to apply. And if you’re approved and accept the terms and conditions of your offer, you’ll receive funding in as little as one business day. Some online lenders also offer same-day funding options.
Secured vs. Unsecured Online Loans
Regardless of the type of online loan you are searching for, it will either be secured or unsecured.
Secured Online Loans
If the loan is secured, it is backed by collateral. This means that you’ll have to put something valuable you own, like your vehicle or home, on the line to secure the loan. And if you’re buying a car or home, the loan you receive will also be secured by the asset you purchase.
So, if you take out an auto title loan and fail to make timely payments, the lender could repossess the vehicle. The same rule applies to home equity loans and lines of credit. If you fail to pay back what you owe, the lender could seize your home. (Quick note: while it may be easy to qualify for title loans, they pose a ton of risk, so choose wisely before you move forward).
With regards to car loans and mortgages, the lender grants you the proceeds to make the purchase with the expectation that they’ll be paid back. But what if you don’t pay them back? To protect themselves from getting dealt the shorter end of the stick, they retain ownership to the asset, which is your vehicle or home, until it is paid in full. This means that they can repossess the car or foreclose on the loan if you break the terms of the contract.
Examples of secured loans: title loans, auto loans, home equity loans or lines of credit, mortgages
Unsecured Online Loans
Unsecured online loans are not backed by collateral, so they pose less risk to the borrower. If you borrow funds and don’t pay them back, the lender will charge-off the account and possibly sue you. This could mean bad news for your credit.
But keep in mind that unsecured online loans generally have more stringent qualification criteria than their secured counterparts. Furthermore, the interest rate you receive will be heavily based on your creditworthiness as it is a major factor that is used by lenders when making a loan decision.
Examples of unsecured loans: personal loans, personal lines of credit student loans, mortgages, credit builder loan, home improvement loan, recreational vehicle loan
Benefits of Online Loans
Online loans are accompanied by a plethora of benefits, including:
Extensive loan options.
Regardless of your financial situation, most lenders have a loan product that may suit your needs. And if they don’t, they are usually part of a network and can refer you to lenders that are able to get you the funding you need. You will also find that many online lenders are flexible, and allow you to adjust your loan offer until you reach a monthly payment amount and terms that are comfortable and affordable for you. This means you won’t have to settle for the few options that are available at the local bank or credit union.
Online loan search tools do the legwork for you
Before you apply for an online loan, consider using an online search tool, like this one, to take the hassle out of finding the most competitive loan offer on the market. All you have to do is answer a few questions about your finances and income.
Even better, most of these sites allow you to shop for online loans without doing a hard pull to your credit. This down loan shopping from hours and maybe even days to just seconds. And depending on which site you choose, you may be able to complete the application and esign the loan documents directly from their portal.
Quick and efficient application process
Whether you use an online loan search tool or apply directly with the lender, it should be a streamlined application process. In most instances, you won’t have to visit a brick-and-mortar location to fill out a mountain of paperwork or provide any supporting documentation. Instead, you’ll be able to do everything online, including uploading your paperwork.
One of the best parts about online loans is the ability to shop from the comforts of your own home or while on the go. If your work schedule is hectic or you’re on the road often, visiting a location isn’t that ideal.
Even better, most lenders allow you to apply 24/7, and some have customer service representatives standing by to assist you with the processing of your loan. So, if it’s Saturday at 9 pm and you find yourself in a financial bind, you may still be able to access the cash you need by Monday afternoon or Tuesday morning.
If you’re strapped for cash, chances are you don’t have a ton of time to spend waiting around for loan approvals. You need the money and you need it now. But even if the need isn’t urgent and the expense is something you’ll be taking care of in the near future, it’s always a good feeling to know you’ll have the money in the bank when the time comes.
With most online lenders, you can expect to have the cash deposited into your bank account in as little as one business day. However, delays related to the processing of your application or bank holidays could occur.
No credit check options
Worried that you won’t get approved because of your credit rating? The good news is there are online lenders that specialize in no credit check loans. This means that all types of credit ratings are accepted as long as you have the means or income to repay what you owe.
Drawbacks of Online Loans
Unfortunately, there are some drawbacks you should keep in mind when considering an online loan:
Small loans with competitive interest rates may not be an option.
Maybe you need a small loan, between $400 and $1,000, to get you through a rough patch. But you don’t want to pay a fortune in interest. You may have a tough time finding online lenders that can meet your needs unless you settle for a ridiculously higher interest rate. And while payday loans are always an option for smaller loan amounts, the interest rates are typically well over 300 percent.
Some loans have exorbitant interest rates.
As mentioned earlier, the rate that accompanies unsecured loan products is usually determined by the applicant’s creditworthiness. This means having less than perfect credit could still mean a hefty interest rate for you, even if your income is more than enough to make the loan payments.
And if you decide to go with a secured loan product or no credit check loan, expect extremely high-interest rates as these loans pose more risk to the lender.
There are some fraudulent companies out there that use the information input by potential borrowers to steal their identities. But you can protect yourself by following the advice suggested in the next section to properly evaluate online lenders.
Evaluating Online Lenders
Ready to submit your application for an online loan? Ask yourself these questions when evaluating lenders and loan options:
- Is their website secured? It’s not enough for the lender to say that their site is encrypted and secured. Their web URL should begin with “HTTPS”, not “HTTP”. Otherwise, you’ll be putting your personal information at risk.
- What are the qualification criteria? Is there a minimum income they’re looking for? Do they check credit? For the latter, keep in mind that no credit check typically means high-interest rates. And if you don’t meet the minimum income criteria, it doesn’t make sense to waste time applying if there are several other options out there.
- What types of loans do they offer? If you’re looking for an unsecured loan product with interest rates under 36 percent and the lender only offers secured loans at sky-high rates, that’s your queue to move on or ax them off the list.
- Are the terms comparable to other loan products on the market? If the terms seem to be too good to be true, they probably are. And you’ll save yourself some time and headaches by moving on.
this is the perfect time to use an online search tool to scope out your options. And as mentioned earlier, you may be able to do so with no impact to your credit.
Before You Apply
Now that you’ve narrowed down your list of possible lenders, here are a few more steps to take before applying:
- Check your credit: It’s a good idea to know where you stand on the credit spectrum ahead of time. It’s nothing worse than applying and getting caught off guard with a poor credit score that you didn’t know you had. Plus, a poor credit score usually leads to higher interest rates, so you’ll know what to expect before the lender breaks the news to you.
- Run the numbers. Use a loan calculator to get an idea of what you can expect to pay each month. Is it doable? If not, you may want to consider lowering the request loan amount and cutting back or seeking funds elsewhere to cover the difference.
- Narrow down your options: Pick the top three lenders from the list and apply away. Or you can use an online loan search tool to kill several birds with one stone.
- Gather your financial information. This includes items your pay stubs and bank statements. The lender may ask you to provide them before they can place the final stamp of approval on your loan documents.
How to Apply
In most instances, you can apply online at the lender’s website. The loan application should also be accessible from your smartphone or mobile device. If you’re approved and the lender requests additional documentation, they’ll usually provide information on how to fax or upload it to their headquarters.
Once the loan is finalized and you e-sign the contract, the funds will be disbursed into your account.
Having trouble applying online? Feel free to give the customer service hotline a call or visit a local branch (if applicable).
What to Do If You’re Denied for an Online Loan
In the event you apply and are denied for an online loan, you have a few options.
Return to the drawing board.
We’re there other lenders that you were considering, but didn’t apply with? It may be worth a shot if you meet their minimum qualification criteria. And if you used a loan search tool, it may be worthwhile to give another one a shot as they may have other lenders in their network that will loan the funds to you.
Get a cosigner.
You also have the option to get someone with good credit to cosign a loan for you. It’s risky business as it means they’ll be on the hook for the amount owed if you default on the loan. But it’s an easy way to get through the lender’s red tape.
Work on your credit rating.
Not in a rush to secure a loan? Consider working on your credit profile to raise your score. That way, you won’t be denied or need a cosigner the next time around.
The Bottom Line
Online loans make it easy to access the funds you need. But before you accept a loan offer, be sure to read the fine print so you’ll know exactly what to expect when it’s time to start repaying the loan.