Before you get a personal loan from an online lender, make sure you know about the pros and cons.
Getting a personal loan used to be a more complicated process. Applicants had to look up lenders, visit their offices in person with the required documents, and fill out a paper application. Nowadays, it has gotten much simpler thanks to online personal loan lenders. You can go through the entire process at home, from applying to receiving your loan.
But any time you’re borrowing money, it’s important to do your research so you can be sure you’re making the best decision. Online lenders have their advantages, but they also have some potential drawbacks. Here are their pros and cons so you can decide if this is the right option for you.
It’s easy to compare rates
With online personal loans, rate shopping is a breeze. Most lenders let you check rates on their websites by entering some basic information, and without affecting your credit score. This means you can easily shop around with all the top personal loan lenders in an afternoon, to see both the interest rates and loan amounts each one offers you.
You have more options
There are lots of online lenders out there, including many that excel in specific areas. For example, if your credit score is on the low side, you can stick to lenders that offer personal loans for bad credit. Planning to get a loan to pay off debt? You can check out personal loans for debt consolidation.
On the other hand, if you want a loan from a brick-and-mortar lender, you’re limited to whatever’s available within driving distance. That could mean choosing from a much smaller selection of lenders and possibly paying a higher interest rate.
It’s fast and convenient
In terms of speed and convenience, online personal loans are as good as it gets. These lenders typically offer a streamlined application process that you can get through quickly, especially if you already have an understanding of how to apply for a personal loan. You’ll need to upload some documents, such as income, identity, and address verification, but you can do it all online.
Many online lenders also offer a speedy funding process. The exact time frame depends on the lender, with the norm ranging from one day to two weeks. If you want to get your loan ASAP, check with the lender to see how long funding takes or look specifically for quick and easy online loans.
You might get a better deal from your own bank or credit union
The biggest downside of online lenders is that there’s no opportunity to build a face-to-face relationship. Lenders only see the information you provide and your credit file.
If you use a bank or credit union in your area, loan officers there will likely be more familiar with your financial situation. They could possibly offer you a better deal or a larger loan amount based on your existing banking relationship. And if you don’t have the best credit score, it could help to go with your own financial institution, where they know more about you than what’s on your credit report.
There’s no in-person customer service
Since online lenders don’t have physical locations you can visit, you can’t sit down with someone if you have any problems. You’ll need to use the contact methods your lender offers, which is usually some combination of phone service, email, and live chat.
This isn’t necessarily a huge issue, since most consumers are used to calling and emailing companies. But poor customer service makes resolving issues a nightmare. Even though customer service is rarely the first factor people look for in an online lender, it’s a good idea to pick a lender that does well in this area.
For the typical consumer, online personal loans are a great option. They’re convenient, it’s easy to rate shop, and you’ll have plenty of options. However, some people prefer a lender they can visit. In that case, a local financial institution is a better choice.