The emergence of the internet age brought us the idea of online loans. Getting loans online is a big problem, especially because many websites pretend to be legitimate lending institutions. According to a study, 47% of all US consumers surveyed experienced identity theft in 2020.
Not every lending company with an online loan is a fraud, but are they truly safe? When compared to personal loan providers near you, which one is better? In this article, we’ll look into online lending, their safety, and if they’re the best way to get the money you need right now.
The Advantage of Online Loans
While online loans are still relatively new, many people have already been turning to online lenders to get access to cash easily. Business who offer loans online focus on simplifying the borrowing process so you can almost instantly find out whether you’re approved, how much you can borrow, and what your payment terms will be.
Here’s a simple example: when borrowing from traditional banks, customers usually need to wait days or weeks to get the money, depending on the amount. Even conventional lenders who disburse a few thousands still need some time to see your credit history.
On the other hand, online lenders have a simple loan application and approval process. After the application is approved, the money is sent directly to your bank account. They have lower overhead costs than banks and credit unions, so they offer better rates and fewer fees (if any).
With online loans, you also have a better chance at getting approved. Financial institutions have become much more cautious over the years. If you have excellent credit, you’re likely to qualify for a loan. However, if you are still building credit or have experienced a lot of hardship, you are unlikely to be eligible for a loan.
Lenders online are more likely to approve lower credit scores and evaluate your creditworthiness using alternative information, such as utility payments, debt-to-income ratios, and even data from your social networks.
In general, online loans are unsecured loans, which means you don’t need to provide collateral to obtain funding. Using your assets to get funding can be riskier than using online loans. Defaulting on an unsecured loan can damage your credit score, but your car won’t be repossessed, and you won’t face foreclosure.
The Risks of Borrowing Online
Online loans are as risky as traditional loans regarding value but have more security concerns than the latter. Lenders who operate online must still follow state and federal regulations, even if the money they lend is unsecured.
They perform credit checks, income verification, and even check your credit history. Like traditional lenders, they can also get a credit report from credit bureaus. They also use alternative data, such as information from your utility payments, debt-to-income ratios, and even data from your social networks.
So, what’s the catch?
Bad Faith Actors with Online Loans
Online lenders may offer many benefits, but they also have several disadvantages. Many loans online come from big financial institutions but the market is also riddled by “fly-by-night” lenders that offer ridiculous rates or payment terms.
When considering getting personal loans online, it’s best to do your research first.
Many online lenders will try to collect your personal information and while many are legitimate providers, there are some who do so without proper data security. Many of these companies also request that you verify your identity with documents such as driver’s licenses and utility bills.
This opens you up to identity theft, which can affect credit score once bad faith actors start using your information for fraudulent activities.
Online scammers and fraudsters are a big problem. These online criminals usually operate out of developing countries, where they don’t have much oversight.
Scammers use the internet to defraud consumers. They set up websites that look legitimate and get consumers to provide sensitive information. Once they have these, they’re able to steal your identity and commit financial crimes under your name.
In-Person Loans vs. Online Loans: Which Is Better?
When comparing in-person loans and online loans, the right choice ultimately depends on your needs. It may be faster and more convenient to get a quick online loan if this is a small loan that you can pay off with your next paycheck and if you don’t mind the higher interest rate.
Some online lenders may only show a “pending” status, without a clear message when you can expect the money. Lenders who operate online may also not provide instant cash either, as they rely on third parties to send money to your account. These third parties may even charge a small fee.
Many online lenders also charge small fees, such as application fees, origination fees, and processing fees. These may cost you a few hundred dollars, which also eats into the net value of your loan.
It’s also important to consider how comfortable you are with borrowing online. Not everyone is good at using the internet, moreso vetting for a reputable online lender. Since you’re sharing sensitive personal and financial information, doing it wrong can be a security risk for you.
Why In-Person Loans Are Better
If you value building a good relationship with your lender, it’s also best to do it in person. Most loans online do not provide products like no-credit-check loans that can help you during a time of need.
In-person loans offer a level of trust and security you can’t find online. In-person loans tend to offer better interest rates, and banks and credit unions usually offer them. Lending institutions also offer a better variety of products, including unsecured personal loans, auto loans, and tax refund advances.
With in-person lenders, you get the money either right away or you get clear information as to when you can expect it.
With in-person loans, a lending agent will walk you through the entire process and support you with any questions that you might have. The processing is straightforward, and you have a dedicated staff member to help you throughout the process.
The Bottom Line
Online loans can give borrowers access to credit quickly, but online lending companies may also charge high-interest rates and processing fees. In-person loans offer better interest rates, and lending institutions offer better product options.
If you value simpler, easier loans, in-person loans are better for you. It’s best to do your research first and compare your options before making a decision.
Looking for a lender you can trust? We at Payment1 can help.
Payment1 offers fast approval and automatic payments, with flexible schedules that can give you quick payouts when you need them the most. Whether it’s personal loans, car title loans, or tax refund advances, we have the right product for you. Talk to us now and find out how Payment1’s dedicated service can give you the best options.