How to Weigh the Pros and Cons of Online Loans

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. 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 understand what you are buying, and consult 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. Please do your homework and let us know if you have any questions or concerns.

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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 6.58%. 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.

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LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.58% APR to 14.87% APR (with AutoPay). Variable rates from 6.275% APR to 12.575% APR (with AutoPay). SoFi rate ranges are current as of July 16, 2018 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 6.275% APR assumes current 1-month LIBOR rate of 2.10% plus 4.175% 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. 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 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.28% – 14.87%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. 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 understand what you are buying, and consult 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. Please do your homework and let us know if you have any questions or concerns.