Online Loans versus Traditional Loans
Online loans are taking over the traditional loans that we are all used to gradually. It is just the same way online banking has taken over the era of traditional banking when you needed to physically be at the bank before you could conduct transactions. At times, you needed to queue up for a long time before you could be attended to. If someone told me that a time was coming that I would no longer need to be at the banking hall before I could have access to my bank account, I would have doubted. With the help of technology today, you can use card to make payments just as you would use your check. Not only that, you can withdraw from your bank account via ATMs even when the ATMs are hosted by a different financial institution. What can we say about mobile banking? The whole banking industry has been revolutionized indeed!
The same thing is happening to lending which is a crucial aspect of banking operations. Attention is shifting from traditional loans to online loans. With online loans, one may not need to visit any bank before he can get a loan at a good rate. You can apply for loans online and within few hours, they are already working on your application. Are you still confused about how online loans work? Well, if you are not yet clear about how it works, I believe this article will provide you with basic information you may need to know.
How to apply for loans online
Online loans work almost the same way with traditional loans in which you need to visit a bank where they will give you a loan application form. Upon the completion of the form, you will submit it to the bank. Based on the information you provided, the bank will evaluate your creditworthiness to determine whether you qualify for the loan or not. The bank will also decide on the amount to loan you and the rate of interest you will need to pay on the loan depending on your credit score amongst other factors which the bank may need to consider.
If you are familiar with the above procedure, applying for loans online is not totally different. Below are the procedures for getting online loans:
- Ascertain the type of loans you need: You can get almost all types of loans online. But the most popular ones are online payday loans and online instalment loans. Payday loans are usually called cash advance. It allows you borrow against your next pay check. This type of online loan is designed for people with bad credit who don’t have access to credit cards. If you have bad credit, you might still qualify for this online payday loan as long as you have regular income. It happens at times that you will have urgent expenses to pay while you are yet to receive your pay check. It can be that your pay check is delayed for certain reason and you can’t wait till you receive the check before you meet the expenses. This type of emergency situation is not good for somebody who is not having credit card. Online payday loans are generally for a period of less than 30 days. In fact, you will need to deposit a check that will cover the online loan amount including the charges. Some online lending companies can allow you to borrow up to $1,500 depending on your income level. You are expected to pay off the loan at once. Another type of online loans is online instalment loans. Online instalment loans amount can range between $1,000 and $10,000 while the repayment can be spread up to twenty four months. While payday loans may not require good credit, lenders will like that you have good credit score before you can be granted online instalment loans.
- Conduct a search: If you want online loans, the best place to conduct a search is on the internet. This means you will need access to internet. With an internet enabled smartphone, you can search for online loans companies. A lot of them are online but you need to be sure that you deal with reputable online loans companies. Don’t fall victim of scammers. To be sure that you are dealing with legitimate online loans companies, you may like to find out their location. If the company can’t provide verifiable address on their website, that may be a red flag that the company may not be a legitimate one. Also, it is good that you find out if the company is licenced to engage in online loans lending business. If it is not licenced to lend money, that may not mean that it is not a legitimate company. Some online loans companies on the internet are just intermediaries connecting borrowers with lenders. Nevertheless, you should understand the company you want to deal with. One may need to be wary of companies that require for upfront payment before giving out loans. You will like to shop for online loans with reasonable interest rates or apr. If any offer looks too good, it can actually be bait. Therefore you may need to walk away from such offer.
- Eligibility requirements: Each specific online loan has its eligibility requirements. There are general and specific requirements depending on the type of online loans you want to apply for and the policies of the lending companies. In most cases, before you can be granted online loans, you will need to meet these requirements.
- You must be a US Citizen. Besides being a US citizen, some online loans companies may require that you live in particular states. This means that if you live in a state outside the jurisdiction of the lending company, you may need to search for another lending company that will cover your area. If you are staying outside USA; that does not mean you cannot have access to online loans. The only thing is that, the requirement will be different. Instead of being a US citizen, you will need to be a citizen of the country where the lender operates. For instance, if you live in India and you want online loans, the lending companies operating in that country will require that you are a citizen of India.
- You must provide your Social Security Number. Your Social Security Number is the nine digit number assigned to you by the U.S government. This is a requirement from the federal government that every financial institution must obtain the Social Security Number of their customers in order to be able to track their financial transactions. Therefore, without Social Security Number, you may not qualify for online loans.
- You must be at least 18 years old. No company will give loans to you if you are less than eighteen years old. The option you have may be for your parent to apply for the loan. Please note that 18 years is just a benchmark, each lending institution may have a different age bracket especially if you are applying for personal loans. Some lenders set their minimum age requirement at twenty one years old.
- Verifiable address: The lending company will require you to provide the address of your residence. As a proof that you actually reside in the address you supplied, you may be asked to submit your current telephone or utility bill.
- Current telephone number and email address: These will be required for communication purpose. However, you may be allowed to choose your preferred means of communication.
- Proof of income: Before you can access online loans or otherwise, you should be able to convince the lender that you have capacity to pay back the loan. No lenders will be willing to extend loan to a person they know will not be able to repay the loan with interest. Your ability to repay the loan will be authenticated by the level of your income. If your income cannot support the repayment of the loans you are asking for, you may be denied or the loan amount is reduced to the amount the lender is convinced that you will be able to repay based on your income. Besides, lenders will be interested about your income source. Do you work as a freelancer or you have a stable employment that guaranties regular job income and other benefits? Lenders may prefer people with stable job to freelancers except you have freelancing jobs that provide you regular income. If you are less than 90 days in your current job, some online loans lenders may decline your application. Some online loans lenders may request for a certain income amount to qualify for a specific loan.
- Recent pay slips: Your current pay slips will serve as proofs of your income. In case you don’t have pay slips especially if you work as a freelancer, your bank statements will serve as an alternative.
- Checking account: Lenders expect you to have checking account with Automatic Clearing House (ACH) Credit and Debit authorization. Automatic Clearing House (ACH) Debit authorization allows the lender to withdraw the payments from your checking account automatically.But this places responsibility on you. You should ensure that you always have enough money in the account so that payments will not be declined due to insufficient funds.
- Credit score: If you are applying for online payday loan, your credit score may not be important. That is why some people refer to payday loans as “payday loans online same day”, “payday loans online no credit check instant approval” or “online payday loans for bad credit”. Online payday loans do not require credit check and this makes the approval process very fast. But for personal loans, you will be expected to have good credit score. Your credit score will contribute to the rate of interest you will be asked to pay on the loan.
- Fill the application form: When you have found a lending company that you think is reliable, you will need to fill the loan application form online. You need to be careful about the information you supply in order to avoid identity theft. It is advisable that you ensure that the form is SSL secured. It is safer to deal with companies that use “https” protocol. This will ensure that your data are protected and fully secured. In your application, you will need to state the exact amount you want to borrow. It is important that you request for the amount you know you will be able to repay.
- Evaluation and Approval: Your application will be evaluated based on the information you provided on the form you submitted. Therefore, you need to be sure that the information is accurate and the loan amount is reasonable. If you meet the eligibility requirements, your application for the online loan will be approved.
- Review the terms of the loan: All online loans come with their terms and conditions. You should ensure that you read and understand the terms of the loans. The fact that your online loan is approved does not mean that you need to accept it. If there is any term or condition you don’t agree with, you may decide to decline the loan.
- Receive the money: If you agree to the terms and conditions of the loan, the loan will be paid into the checking account you provided. Once you receive the money, it is left for you as to how you apply the money. But it is good that you spend the money wisely. Remember, the loan is not income to you; you still need to pay it back. Therefore, you should not engage in reckless spending so that you don’t find yourself in deep debt.
- Pay back the money: After you have received the online loan, you are under obligation to pay it back. You should pay back the loan based on the agreed terms. Late payments or defaults will be reported to the credit bureau and this will not help your credit score. It can take up to seven years before history of late payments or defaults leaves your credit report.
Advantages of online loans
Applying for loans online come with many advantages. Some of them are highlighted below:
Low rates: Because of the competitions in the online loans market, you may be offerred low interest rates. The online loans companies understand that you will be getting different offers. Therefore, they try to keep their rates as low as possible in order to make their rates competitive.
Convenience: Unlike traditional or conventional loans where you need to visit banks or credit unions before you can apply for loan; online loans application can be completed right from the comfort of your home. What you need is just access to the internet.
It is fast: Online loans such as payday loans are very fast. Some lenders offer same day payday loans. This can help people who are faced with emergencies to have instant access to cash. There are some situations where you will need money almost immediately such as the need to pay medical bills. If you don’t have credit cards, online loans may serve as your life line.
It saves time: You don’t need to spend time going from one bank to the others while shopping for low rate loans. In fact, you can do your shopping on the go or while waiting at a lobby.
Accessibility: Online loans are easily accessible for people with bad credit especially if you are applying for online payday loan. If one company declines your application, you can get two or three other online loans companies which may be willing to grant you the loan.
Disadvantages of Online Loans
The major disadvantage of online loans is that it could be a debt trap in disguise. If you are unable to repay your loans on time, the interest and other penalties can quickly accumulate to an amount that you will not be able to pay. Also, one can easily fall victim of scammers. Because you are filling the application for the loans online, your identity can be hacked. That is why it is good you only use websites that are SSL secured.