These tips will help you make the right decision if you're in the market for an online loan.
Before applying for an online loan, you’ll want to have a very well-thought out plan for what you’ll use it for and how you’ll pay it back. Once you have that, treat your online loan search and application like any other online shopping experience.
Internet shopping is great because it gives shoppers a tremendous amount of leverage. The same goes for online borrowers. Ask yourself this – would you buy an airline ticket without doing some online comparison shopping? If your answer is no, then online lending could be right for you.
Most people that apply for loans have a very specific use for the money. If you need to finance a large purchase, try to see if you can cover 10% or 20% of the cost with cash.
If you need the loan to cover daily expenses during difficult times, it’ll be tough to pinpoint an exact amount, but establishing a budget and making sure you can pay it back will be paramount.
The key is to not take out more than you need or can pay back.
Taking on too much debt can significantly restrict your ability to save. Not to mention predatory lenders will happily give you as much money as you qualify for, since most of they make most of their money by charging people late fees and extension fees.
Until recently, taking out an online loan was like walking through a minefield. You may make it through unharmed, but chances are your personal finances would get seriously wounded.
Predatory lenders spent lots of money on direct-to-consumer advertising, pushing expensive “bait-and-switch” loans to people with little financial experience and bad credit. They present themselves as do-gooders to the financially underserved, only to gouge them with hidden fees and 500%+ APRs.
Now for the good news! Online lending is finally starting to gain popularity as a mainstream financial alternative. As a result, there are now some great online lenders offering quality credit products – you just have to know where to look!
FIRST, make sure you look beyond the first couple of results on your Google search. The first links are generally paid advertisements, strategically positioned at the top to get people to click and act on a whim.
NEXT, do a basic background check on the lender, its website, parent company and headquarters. You’d be surprised at how many lenders don’t provide contact, company, or headquarter information.
What does this tell you? It means they want to make it extremely hard for you to reach them if you have any issues or complaints. Being deceptive is no way to gain a borrower’s trust.
FINALLY, look into the pros and cons of the different online products to find one that works best for your situation.
For example, if you expect to pay the loan back quickly, find a short-term product with no prepayment penalties. If you want to finance a large expense, such as a car repair or a home improvement project, take out a longer-term loan with a fixed rate and confirm the lender reports to the major credit bureaus.
Treat your loan search as if you were interviewing the lender for a job opening. While good references can help, negative ones act as obvious red flags that they should not proceed with a candidate.
The same should apply for lenders. The Internet makes it extremely easy to find reviews on most online products. Just keep an eye out for sponsored reviews, which are basically paid advertisements.
When reading reviews, identify what part of the customer experience is most important to you, and see how the lender stacks up against its competitors. If you want a quick and painless application process but the general feedback is that the lender requires lots of paperwork, you should move on.
Once you’ve narrowed your options down to between one and three loans, all that’s left is to understand how much each will cost you in the long run. Borrowers can lose sight of the total cost when they only focus on the finer details of a loan offer, such as the monthly payment, or APR.
There are some great loan calculators out there that are both easy-to-use and free. You can try to optimize your loan by playing around with the terms and finding the structure and offer that works for you.
The Borrowize simple loan calculator breaks down the costs in a straightforward and easy-to-understand manner, and shows you how much it costs compared to other credit products such as credit cards and high-cost installment loans.
If you're in the market for a personal loan, Borrowize can help. We'll connect you to our network of consumer-friendly lenders, give you tools to calculate the costs, and provide all of the info and tips to help you make the right decision.
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