All About Online Loans

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Sometimes, regardless of how you try to push it all the way down to the bottom of your list of options, online loans can be your quickest and easiest solution if you are facing financial dilemmas. Traditionally speaking, people only have a few options to borrow money—contacting a bank, borrowing from family members and colleagues, or opting for the black market and dealing with underground entities. 

Fortunately, in the wake of the digital age, more people have become inclined to online loans because of convenience and quicker access. But what are online loans? This article will help you understand everything you need to know about loans online.

What is an online loan? 

Online loans are loans that are acquired through the internet where money lenders operate. Processes for online loans vary from lender to lender, but there are ways in which processes are universal across the board. Online loans are not very different from the traditional methods of borrowing money. The main advantage of online loans is that borrowers no longer have to visit a physical office because everything is done online. 

What are the main types of online loans?

  • Payday loans – Payday loans are short-term online loans that have a very high interest rate. In most cases, the payment terms for a payday loan is only up to two weeks, and the average annual percentage rate is around 300 percent. The average loanable amount is $350. Payday loans are designed to be paid back in a single lump sum, and many borrowers are finding it difficult to immediately repay the loan. If the borrower is unable to settle the payment due, many payday lenders will give the former the option of rolling the loan over in which the borrower can only pay the interest owed on the loan, which is usually 15 to 20 percent of the principal amount. Then the lender will give the borrower a new payment term that typically has an additional interest. Because of its predatory nature, rollover is banned in most states and limited in some. The reason is borrowers can keep rolling the loan over, paying more and more without ever getting close to paying the loan off. In some states, payday lending is also not allowed.
  • Title loans – Title loan is a type of online loan that is similar to payday loans in several ways. They are both short-term loans that have an annual percentage rate of around 300 percent. However, unlike payday loans, title loans are secured by the title to your assets such as your car, truck, or motorcycle. This means, if you are unable to settle your payment, the lender can gain the ownership of your asset and sell it to recoup the money owed. Since title loans are tied to highly valuable assets, they can come with much larger principal amounts compared with payday loans. While the average loanable amount on payday loans is $350, the borrower can loan an average amount of $100 to $5,500 with a title loan. Like payday loans, title loans are often made on a monthly basis and require lump sum payment. The average monthly interest is at 25 percent, and if you can’t pay your loan, the lender will often roll the loan over. Title loans are also banned in some states.
  • Peer-to-peer loans – These are loans online in which the borrower receives money from an individual rather than a financial entity, and they are funded by private investors. Many peer-to-peer loans are arranged online by sites that connect borrowers with private lenders. Peer-to-peer loans come with interest and fees that are set by the lender.
  • Personal installment loans – These loans are often the safest loans online. However, many personal installment loan lenders have very high interest rates and fees and do not even conduct an income verification or an assessment to determine the borrower’s ability to repay. Unlike in payday loans and title loans, borrowers of personal installment loans can repay in a series of scheduled repayments, referred to as “installments.” Borrowers have more flexibility in meeting and settling the payment due unlike paying it in a single lump sum.

How do loans online work?

In the majority of the cases, the borrower needs to visit a lender’s website and fill out an online loan application form to get loans online. Most lenders will then do credit checking and income verification to evaluate the borrower’s capacity to pay or their creditworthiness. They will then decide if the online loan application gets approved or rejected based on their findings. 

If the online loan application gets approved, the lender will deposit the loaned amount to the borrower’s bank account. In terms of repaying the owed money, most lenders automatically withdraw the money. Here are five essential steps a borrower should take in getting loans online:

  • Do your part of the research

The first thing in every online loan borrower’s checklist is research. Finding a good and reliable lender of loans online is hardly impossible without looking. It is the borrower’s responsibility to identify and assess the credibility and trustworthiness of the online loan lender. 

  • Compare online loan providers

This step requires comparing the rates, fees, and other conditions of online loans. Obviously, choose the one that has the lowest interest rates, especially the APR or the annual percentage rate. Ideally, the interest rate of loans online should not exceed 36 percent. 

  • Double-check the requirements of the online loans

When you have chosen a loan online, do another round of once-over. Is the amount acceptable? Would you be able to repay the whole loan amount in case you lose your primary source of income? Overall, do you meet all the stated requirements such as the credit score and a stable income? If everything is checked, move to the next step. Otherwise, find another loan.

  • Submit your online loan application

This part is almost the same for all online loan applications. It includes three stages:

  1. Provide basic information such as name, address, age, phone number, birth date, and so on.
  2. Provide financial information such as proof of income and bank account details.
  3. Upload a copy of the required documents.

When the online loan application is ready, send it to the lender. They may return the offer, refuse the request, or provide extra checks.

  • Get the money

When the offer is accepted or digitally signed in some cases, the lender will transfer or deposit the borrowed money directly to your bank account.

How to choose the best loans online?

There are hundreds of fraudulent and illegal firms that are offering loans online. The responsibility of identifying and scrutinizing lies in the hands of the borrower. To protect yourself from the dangers and risks of financial scams, it is important that you know how to spot legitimate online loan lenders. Here are some tips to help you identify legit online loan lenders:

  • Reachability

The majority of online loan lenders tend to be persistent when it comes to calling you to remind you of your dues or to offer their products. Legitimate online loan lenders are easy to reach. They provide contact numbers in case borrowers have questions or clarifications. More often than not, they also have a physical address, email address, and a website to prove their authenticity. These are just some of the signs that the online loan lender you are transacting with is an established business.

  • No upfront payment required

It is an unspoken rule in loans online that you should not be asked to send money before your loaned amount is sent to you. Scammers often take advantage of the fact that people who borrow are in desperate need for money; hence, the latter can get pressured to do something he/she is not supposed to do. Scammers would occasionally ask a borrower to send a certain amount so that they could disburse the total amount of the money borrowed. Ridiculous as it may sound, a few still take the bait and end up losing cash.

  • Loan terms

A legitimate online loan lender typically provides a document stating the terms and conditions of the loans online. They will normally provide you a digital copy of the document and will give you ample time to decide before accepting and pursuing the loans online.

  • Customer service

Some lenders harass their borrowers who fail to pay their loans online on time. Online reviews will provide you with information about who among those loans online lenders have earned a good reputation. Most positive feedback that you will see talk about excellent service or after-sales service.

  • Interest in your payment history

Were you approved on your first loans online application and declined on your next request or renewal? Have you ever been denied on your second online loan application despite the fact that you have already settled your outstanding balance? Your loans online lender has probably conducted a background check to evaluate your payment and borrowing history. Legitimate online loans lenders do not want borrowers who often miss their payments. They are keen on people who pay their online loans on time because it is what sustains their business. 

How do I know if online loans are a debt trap?

Having proper knowledge about the things that make loans online dangerous can keep borrowers from falling into a debt trap. Here are three signs to find out predatory loans online:

  • Does not check credit history

Some lenders use a no-credit-check advertisement strategy to entice borrowers to apply for loans online. This means that the online loan lender will not obtain any financial information of the borrower and therefore cannot gauge the latter’s ability to repay. 

According to Brad Kingsley, a South Carolina-based financial planner, predator online loans lenders often charge an exorbitant annual percentage rate to compensate for the losses they incurred from the borrowers who inevitably defaulted on their loan. “If they’re making it super easy [to get loans online], then it’s a red flag,” he says. 

  • Monthly payments as a diversion

Lenders who do not mention the annual percentage rate or online loan terms and only focus on low monthly payments on their advertisements should set off an alarm. Predatory online loan lenders may do this to divert the attention of the borrowers from the loan’s sky-high term and rates.

  • Length of repayment periods

A payday loan typically requires the borrower to repay the money in a single lump sum within a week or two. However, some lenders offer small amounts of loans with high APRs and extremely long repayment periods. This can potentially leave a borrower paying more in interest and fees than the amount they initially borrowed.

Are loans online safe?

It’s a case-by-case basis. Traditional online lenders often require a good credit score before they approve an online loan application. A lot of online loan lenders do not look at good credit scores. Some do not even check credit scores at all. Credit checks are put in place to ensure that you only get what you are able to pay back. If you opt for online loans that do not require a credit check, consider online loans lenders who conduct a soft check on your credit to determine that you only qualify for loans that you can afford. 

Bottom Line

Online loans can be a convenient way to get cash, especially in times when it is needed the most. Borrowers will want to get the best loans online with fast approval, borrower-friendly conditions, quick money transfer, flexible repayment terms, and so on. However, there are no perfect deals, and there will always be considerations to prioritize and pain points to accept. 

If you are looking for the best terms, be ready to prove your ability to pay back by providing necessary documents and information. Otherwise, you have no other choice but to agree to a higher interest rate or lower loanable amount. 

Interested in applying for loans online? Try 90 Day Loans today!

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