It’s one thing to know that you need a loan, it’s another to know where to find it.
So, you’d be forgiven for starting your search on Google.
That approach could lead you to consider online loans with monthly payments. Although lenders without brick-and-mortar buildings are known for offering faster service than traditional banks, they’re not without risks.
Before you take out a loan online, ensure you’ve found the right lender. You can accomplish this by understanding how these loans work and reviewing red flags that might pop up from the lenders in your search results.
How online loans with monthly payments work
Installment loans — or loans with set, monthly payments — can refer to borrowing money for big-ticket items like a college education (student loan), a new car (auto loan), or even a home (mortgage).
But more likely, you’re considering online companies with monthly payments to secure a personal loan. This typically entails a smaller loan amount and a shorter repayment term.
Whatever the reason for your borrowing, online loans with monthly payments work the same way. You apply for a specific amount, supplying personal financial information like your credit score. The lender evaluates you as a customer and offers you four details specific to your potential loan agreement:
- Interest rate (fixed or variable)
- Repayment term
- Monthly payment
- Information about fees
Your monthly payment would cover the principal amount you borrowed, plus the interest that accrues.
Say you borrow $5,000 at a 20% interest rate to cover unforeseen expenses at home. Over a three-year repayment term, you would pay $186 per month. After 36 months, you would have paid $1,689 in interest, or $6,689 total to borrow the original $5,000.
4 red flags of online loan companies with monthly payments
You can tell a lot about an online lender by its home page. You’d be right to be skeptical of a flashy, colorful website that throws around ad-speak like “no credit necessary” or “instant approval.”
Unfortunately, you’ll have to go a few layers deep to separate shady lenders from their more reputable peers.
Here are four red flags to consider when looking for loans online with monthly payments.
1. High interest rates
It’s common knowledge that personal loans come with higher interest rates than, say, student loans or home mortgages. But there’s also a big divide between the rates online lenders offer on personal loan products.
One of the first steps to take when vetting an online lender is to check its rates. You can find a link to them at the top or bottom navigation bar of the lender’s website. If rates are hard or impossible to find, that could be another red flag because transparency matters.
Be wary of a lender offering a significant range of rates, say 29% to 229%. Also, shy away from lenders that have astronomical maximum rates, such as those as high as 1,200%.
Although you won’t receive your specific rate until completing an application, find online lenders that offer competitive ranges for all customers. You’ll want to find rates that are at least in the same ballpark as those of a credit union, which offer Payday Alternative Loans at or below 28%.
2. Slow or poor customer service
Even if you’ve shopped rates and found an online lender to fit your needs, you might discover a red flag during the loan application process. Ask questions about your loan terms and see what sort of response you receive from the lender’s support team. Also, note how long it takes to receive the help you need.
Because you’ll be borrowing and repaying as much as thousands of dollars, you’re going to have questions before signing on the dotted line. If your lender candidate is either unhelpful or unresponsive, realize that you probably won’t be treated any better after you give them your business.
Focus on online lenders that are informative and fast to come to your assistance. You can use crowdsourced customer review websites like Trustpilot or independent ratings organizations like the Better Business Bureau (BBB). Research them as if you were vetting a student loan refinancing company.
3. Inflexible terms
You should know in advance what loan terms you’d accept. If you decide that making smaller payments over three years suits your finances better than a 12- or 18-month repayment plan, for example, ensure you find a lender that offers that flexibility.
Unfortunately, you’re likely to find inflexibility in the terms of some online loans with monthly payments. One might offer cash advances of $100 or more or only offer loans with a minimum balance of $4,000.
From the loan amount to the repayment term, find a lender that matches each of your preferred loan terms. Aside from being able to fund the amount you’re looking to borrow, your criteria might look something like this:
- Interest rate: Fixed and below the local credit union’s rate
- Repayment term length: Two to three years
- Monthly payment: $225 or less
- Information about fees: No fees for an early payoff
4. Hidden or avoidable fees
If you choose a conservative loan term and expect to pay off your loan early, for example, try to find a lender that doesn’t have prepayment penalties. These can tack on additional costs if you pay off your debt early.
Also, be on the lookout for penalties for late payments. Reading the fine print — and bugging customer service — should tell you exactly how much you can expect to pay if you miss a payment.
The more reputable the lender, the less likely they’ll contain hidden fees in the loan agreement. But a lesser-known lender might hide their extra costs, so prepare to do some digging once you’ve zeroed in on a lender that meets all your other requirements.
Taking out loans online with monthly payments
Understanding exactly how your monthly payments will work is a good first step before resorting to a personal loan. A great second step is finding a lender without these red flags.
Borrowing money from online loan companies with monthly payments might be easier and faster than taking on the mountain of paperwork inside of a traditional bank. Just make sure the lender is actually better for you and your finances.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||Rates (APR)||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|7.73% - 29.99%||$1,000 - $50,000|
|5.37% - 14.24%1||$5,000 - $100,000|
|8.00% - 25.00%||$5,000 - $35,000|
|4.99% - 16.24%2||$5,000 - $50,000||Visit Citizens|
|5.99% - 35.89%||$1,000 - $40,000||Visit LendingClub|
|5.25% - 14.24%||$2,000 - $50,000||Visit Earnest|