How to Weigh the Pros and Cons of Online Loans

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Whether you use a budget-tracking app or deposit checks through your phone, chances are you’ve moved part of your financial life online.

So if you’re looking to borrow money, you might wonder: Should you consider a loan from an online lender?

The short answer is yes. But first, you should compare your options to find the right loan for your needs. Here’s what you need to know to get started.

Should you consider a loan from an online lender?

If you’re debating whether online loans are right for you, consider these nine pros and cons before you borrow money.

Major pros of online loans

Let’s start with the benefits of borrowing money from an online lender. Here are the top five.

1. Convenience

“Online loans offer convenience,” said finance manager Nate Masterson of Maple Holistics. “Instead of having to go into a branch and spend time signing papers, you can go through the full process from your home, filling out all the forms online.”

Rather than fitting a bank visit into your busy schedule, you can complete the entire process from your computer at a convenient time. You typically can start an application online, save your information, and revisit it later if you’re not ready to apply.

2. Low rates and fees

Because online loan companies don’t have to pay for brick-and-mortar locations, they can reinvest the savings into their financial products. As a result, you often will find lower interest rates and fees on online loans.

Online lender SoFi for instance, charges no origination fees on its low-interest personal loans with fixed APRs that start at as low as 5.99%. Wells Fargo, on the other hand, has fixed APRs for personal loans starting at 7.24%, as of July 6, 2018.

College Ave doesn’t charge a disbursement fee on its student loans, and its fixed APRs start at the low rate of 4.54%.

Of course, your rates ultimately depend on your creditworthiness, so it’s worth shopping around with different types of lenders to see what you can get.

3. Instant rate quotes

Several online loan companies, including Upstart (which offers personal loans) and CommonBond (which services student loans), offer the option of instant preapproval. By entering a few basic pieces of information, you can see whether you pre-qualify for a loan.

You’ll get a sense of your rates and terms without having to fill out a full application. Plus, your credit score won’t be impacted because the companies perform a soft credit check. As a result, you can compare loan offers from multiple online lenders easily without hurting your score.

4. Fast processing time

“Online loans often offer you the money a lot faster than standard loans, which can be good for somebody who needs a loan urgently,” said Masterson.

Personal loan lender ELoan, for example, deposits money into your account as fast as the next business day once your application is approved.

So instead of waiting for a bank to process your loan, you could get funds right away from an online lender.

5. User-friendly websites

Some traditional banks haven’t updated their site navigation or clunky apps to make it easier for customers to use.

But online loan companies prioritize user experience because they work solely online. Therefore, they tend to have easy-to-use, well-designed websites. Plus, they tend to be upfront with information, such as how much you can borrow and what range of APRs you can expect.

Online lenders often have a robust FAQ section, so if you have questions about borrowing, you should be able to find answers easily.

Potential cons of online loans

Although online loans are a great option for many borrowers, they also could come with some potential downsides. Watch out for these four drawbacks before you apply.

1. Security concerns

“Processing your personal information online can present the risk of your privacy being compromised, so make sure to [borrow] from a reputable business that is likely to have high security,” said Masterson.

Besides facing hacking risks, some online companies also have been targeted by scammers. ELoan, for example, warns that scammers claiming to be ELoan representatives have made unsolicited calls to customers.

If you’re borrowing from an online company, do so only from its official website. Be wary if you get an unsolicited call seeking your personal information because it could be a scammer and not a person affiliated with the lender.

2. No loyalty discounts typically

Some banks offer interest rate discounts on personal loans if you’re a banking customer.

Online lenders, though, typically don’t have such relationship discounts. If you aim to find the lowest possible interest rate, it could be worth checking with your current bank or credit union to see what it can offer you.

3. No face-to-face customer service

If you go with an online loan, you give up the option to visit a brick-and-mortar location and speak in person with a customer service representative.

With an online loan company, you likely will be able to speak to its representative over the phone or via email. But if face-to-face interaction is important, you might want to opt for a bank or credit union.

4. Potential technical challenges

Although online lenders tend to offer user-friendly websites with easy application methods, the entire process of borrowing online requires a certain comfort level with technology. If you aren’t tech-savvy, you might prefer to take your business offline.

Explore your options before choosing a lender

Should you consider a loan from an online lender? Yes, but shop around with different types of lenders before you decide.

Your bank, for instance, might offer a good deal if you’ve been a customer for a long time. And some of the best credit unions have a reputation for flexibility and working with borrowers who don’t have strong credit scores.

So even though it’s easy to hop on your computer and apply with an online lender, it could be worth taking the time to explore offers from banks and credit unions.

However, the pros of online loans could outweigh the cons, so don’t forget to include online lenders in your search.

Remember that whether you choose online loans or not, your goal is to find a secure private student loan or personal loan with a competitive rate that will help you reach your financial goals.

Note: Student Loan Hero has independently collected the above information related to Wells Fargo’s personal loan rate. The company has neither provided nor reviewed the information shared in this article.

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Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

RATES (APR)loan amount
5.99% – 17.88%1 $5,000 to $100,000
5.69% – 35.99% $1,000 to $50,000
6.98% – 35.89%* $1,000 to $50,000
99.00% – 199.00%2 $500 to $4,000
5.99% – 24.99%3 $5,000 to $35,000
5.99% – 29.99%4 $7,500 to $40,000
compare rates on Lendingtree now
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.99% APR to 17.88% APR (with AutoPay). Variable rates from 6.49% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of November 4, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.49% APR assumes current 1-month LIBOR rate of 1.81% plus 3.08% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
    See Consumer Licenses.
  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. If you lose your job through no fault of your own, you may apply for Unemployment Protection. SoFi will suspend your monthly SoFi loan payments and provide job placement assistance during your forbearance period. Interest will continue to accrue and will be added to your principal balance at the end of each forbearance period, to the extent permitted by applicable law. Benefits are offered in three month increments, and capped at 12 months, in aggregate, over the life of the loan. To be eligible for this assistance you must provide proof that you have applied for and are eligible for unemployment compensation, and you must actively work with our Career Advisory Group to look for new employment. If the loan is co-signed the unemployment protection applies where both the borrower and cosigner lose their job and meet conditions.
  5. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
2 Includes AutoPay discount. Important Disclosures for Opploans.

Opploans Disclosures

Direct Deposit required for payroll.

Opploans currently operates in these states: . *Approval may take longer if additional verification documents are requested. Not all loan requests are approved. Approval and loan terms vary based on credit determination and state law. Applications processed and approved before 7:30 p.m. ET Monday-Friday are typically funded the next business day.

  1. To qualify, a borrower must (i) be a U.S. citizen or permanent resident; (ii) reside in a state where OppLoans operates; (iii) have direct deposit; (iv) meet income requirements; (v) be 18 years of age (19 in Alabama); and, (vi) meet verification standards.
  2. NV Residents: The use of high-interest loans services should be used for short-term financial needs only and not as a long-term financial solution. Customers with credit difficulties should seek credit counseling before entering into any loan transaction.

  3. OppLoans performs no credit checks through the three major credit bureaus Experian, Equifax, or TransUnion. Applicants’ credit scores are provided by Clarity Services, Inc., a credit reporting agency.

  4. Based on customer service ratings on Google and Facebook. Testimonials reflect the individual’s opinion and may not be illustrative of all individual experiences with OppLoans. Check loan reviews.

  5.  

    Rates and terms vary by state.

3 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.
4 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available.
* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Personal loans made through Upgrade feature APRs of 6.98%-35.89%. All personal loans have a 1.5% to 6% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off a portion of existing debt directly. For example, if you receive a $10,000 loan with a 36-month term and a 17.98% APR (which includes a 14.32% yearly interest rate and a 5% one-time origination fee), you would receive $9,500 in your account and would have a required monthly payment of $343.33. Over the life of the loan, your payments would total $12,359.97. The APR on your loan may be higher or lower and your loan offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term, and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is no fee or penalty for repaying a loan early. Personal loans issued by WebBank, Member FDIC.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

Published in Loans, Personal Finance

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