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.
“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 6.99%. 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 5.29%.
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. Citizens Bank, for instance, offers a 0.25% percentage point loyalty discount to its customers who take out a personal loan.
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.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** 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.
|7.73% – 29.99%||$1,000 - $50,000|
|6.26% – 14.87%1||$5,000 - $100,000|
|6.99% – 35.97%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|4.99% – 29.99%3||$10,000 - $35,000|
|5.99% – 18.99%4||$5,000 - $50,000|
|15.49% – 34.49%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|