How to weigh the pros and cons of online loans


Note that the student loan situation has changed due to the impact of the coronavirus outbreak and the relief efforts of the government and many lenders. Check out our Student Loans Hero Coronavirus Information Center for news and additional details.

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Whether you’re using a budget tracker app or depositing checks into your bank account through your phone, chances are you’ve moved at least some of your financial life online. So, if you are looking to borrow money, you might be asking yourself: should you consider online lenders?

Online loans can be a good way to secure the necessary cash. But before you act, here are some advantages and disadvantages of online loans, as well as tips for obtaining a loan via the Internet.

Advantages and disadvantages of online loans

Online personal loans can be taken out for a number of reasons, including debt consolidation, home improvement, paying for a special event like a wedding, financing a car, paying for adoption or medical expenses and financing a business. You can also take out a loan online to pay for your education (Commonbond is an online lender focused on student loans). If you are considering getting a loan online, consider these pros and cons first.

Benefits of online loans

Here are some of the benefits of going online for a loan – some obvious and some less:

1. Convenience
2. Potentially low interest rates and fees
3. Instant quotes
4. Quick turnaround time
5. User-friendly websites
6. Small loan amounts

1. Convenience

Rather than going to a bank and talking to a loan officer in person, you can get a loan online from the comfort of your own home. The process can be quick, but if you need to, you can often start an online application, save your updates, and return to the online form later.

Increasingly, physical banks are also offering the ability to complete personal loan applications online. However, you usually have to be an existing customer when it comes to getting a personal loan from a traditional bank or credit union, which reduces the convenience factor. Online personal loans are also generally unsecured (although some are secure), so you don’t need to have collateral, like a checking account in a bank, for example.

In addition, there are many personal loan options available from online lenders, while many traditional banks such as Bank of America, Capital One, and Chase Bank ⁠ do not even offer such loans.

2. Potentially low interest rates and fees

You can find great interest rates and little or no origination fees for online loans, although your rates usually depend on your creditworthiness and overall financial profile. For example, LightStream online lender has no fees and currently offers a range of APRs from 5.95% to 19.99%. Meanwhile, a Citibank personal loan starts with a higher APR of 7.99% to 23.99%.

However, you can only get this super low rate with LightStream if you have the most impressive credit and payment history, as well as stable income and savings. This rate also only applies to certain loan amounts and conditions.

Here you can read our review of some of the best personal loans for good credit. If your credit profile and financial profile aren’t the strongest, you might consider a lender that allows co-signers or co-borrowers.

3. Instant quotes

Many online loan companies offer the option of instant pre-approval. By entering some basic information, you can see if you are prequalified for a loan.

This means that you will have an idea of ​​your rates and conditions without having to fill out a full application. In addition, your credit score will not be affected, as companies will perform a smooth credit check during the pre-approval process. As a result, you can easily compare loan offers from multiple lenders online without hurting your score. There will usually be a credit check after you actually apply for the loan.

4. Quick turnaround time

Online loans can have a very quick turnaround time which is handy if you need it. fast funds.

The ELoan personal loan lender, for example, can deposit money into your account the next business day after your application is approved, and RocketLoans can authorize same-day financing if you ask for $ 25,000 or less.

5. User-friendly websites

Online loan companies prioritize user experience because they work only on the web, with no physical services. Hence, they tend to have easy to use and well designed websites. They’re also usually clear with information, such as how much you can borrow and the range of APRs you can expect.

Online lenders also often have a solid FAQ section on their websites, so if you have any questions about borrowing, you should be able to find answers quite easily.

6. Small loan amounts

It is not always easy to get a very small loan from a traditional bank. For example, the lowest personal loan you can get from Citizens Bank is $ 5,000. Some online lenders have similar ranges. However, others, like the online lender Come on, offer loans as small as $ 1,000.

You can also look for small loans from a credit union, but remember that you usually need to already have an account to secure a loan.

Potential disadvantages of online loans

While online loans can be a great option for many borrowers, they can come with potential drawbacks as well. Watch out for these drawbacks before applying.

1. Security concerns
2. Lack of loyalty discounts
3. No face-to-face customer service

1. Security concerns

Providing personal information through your computer can be risky, so you should always make sure that you are working with a reputable company before applying for a loan online.

In addition to facing the risks of hacking, some online businesses have also been targeted by scammers. ELoan, for example, warns that crooks claiming to be representatives of ELoan have made unsolicited calls to clients.

If you are borrowing from an online business, only do so from their official website. Beware if you receive an unsolicited call asking for your personal information as it could be a scammer and not someone affiliated with the lender. And always be very careful to make sure you are not working with a predatory lender.

2. Lack of loyalty discounts

Some banks offer interest rate reductions or special reward programs related to your loans if you are a bank customer.

However, online lenders usually do not have such relationship discounts because most borrowers do not have an existing account with the lender. If you are looking to find your lowest possible interest rate, it may be worth checking with your current bank or credit union to see what they can offer you.

It should be noted that while loyalty programs may not be common with online lenders, they can offer benefits such as a lower interest rate on your loan for signing up for an automatic payment program.

3. No face-to-face customer service

If you opt for an online loan, you forego the ability to visit a physical location and speak in person with a customer service representative.

With an online loan company, you will likely be able to speak to a representative by phone or email. But if you don’t really like doing everything online and having face-to-face interaction is important to you, you might want to go with a bank or a credit union.

Tips for getting a loan online

Should You Consider A Loan From An Online Lender? Sure, but you should consider different types of lenders before you make up your mind.

Your bank can offer you a good deal if you’ve been a customer for a long time. And some of the The best credit unions have a reputation for being flexible and working with borrowers who don’t have good credit scores.

So while it’s easy to jump on your computer and apply to a lender online, it might be worth taking the time to explore the offers of banks and credit unions.

If you decide to take out a loan online, follow these steps:

  • Understand your credit: You may want to check your credit even before going through the pre-approval process, so you know what to expect with regard to the terms that will be offered to you. You can request your free credit report from the three major credit bureaus on an annual basis at If you see anything in the reports that you believe is incorrect, you can contact the offices and attempt to correct the errors. You can also get a feel for your credit score for free through your own bank, through Discover (even if you don’t have an account with them), or through sites like our parent company, LendingTree, which provides your VantageScore.
  • Prepare all your documents: Gather all the documents you will need to provide the information needed to finalize the loan, including proof of income, employment history, and any other debts you may have. If you have all your information and documents before you start the process online, it will be easier to manage.
  • Research Lenders & Compare Quotes: As noted, there are many options for lending online, and you don’t want to just choose the first online lender you hear about. Before deciding on a loan, you should consider the rates, terms, and potential benefits of several online lenders and find the one that is best for you and your situation. You can go to the Student Loan Hero personal loans marketplace to compare and contrast our approved list of favorite lenders.

Rebecca Stropoli contributed to this report


About Galen A. Williams

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