Looking for a Personal Loan? Avoid Online Lenders With These 4 Red Flags

online loans with monthly payments

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:

  1. Interest rate (fixed or variable)
  2. Repayment term
  3. Monthly payment
  4. Information about fees

Your monthly payment would cover the principal amount you borrowed, plus the interest that accrues.

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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

Like any financial transaction in the hundreds or thousands of dollars, you can expect fees with online loans with monthly payments. But some personal loan fees could be avoidable.

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

SoFi Disclosures

  1. 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 Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal LoansFixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 4.98% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 21, 2017 and are subject to change without notice. Not all rates and amounts available in all states. 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. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 4.98% APR assumes current 1-month LIBOR rate of 1.34% plus 3.89% 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 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown 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.
  2. 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.
  3. 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.
7.39% - 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
4.98% - 14.24%1$5,000 - $100,000
Check rate nowon SLH's secure site
8.00% - 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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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 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.