Applying for a loan is something you might do in the future, whether or not you see yourself ever doing that. There are many types of loans out there, but the most convenient one to get is an online loan. Obviously, many factors come into play in the process of applying and getting approved.
What Is An Online Loan?
From the name itself, online loans are borrowed money from people or institutions who lend online. The whole process, from application to payments, is all done online, and loaned funds are given to you by way of bank deposit to your account. When interest or principal payments are due, lenders will automatically deduct money from the same account without warning.
What Do You Need To Consider?
1. Documentary and Qualification Requirements
Just like with other types of loans, you need to meet certain requirements in order to qualify for online loans, although these prerequisites are more lenient as compared to that of bank loans.
Online loans are designed to service immediate financial needs for a short period of time. Because of this, only a few requirements are asked of applicants.
Here are the requirements with which you need to comply when applying for an online loan:
At least 18 years of age
Regular employment or income
Copy of your latest payslip or proof of income
Any valid government ID
2. Higher Probability of Approval
Unlike bank loans, you don’t need to have a high credit score or credit history to apply for online loans and same day loans. Creditors mainly base your credibility from your income, which equals to getting approved quicker. However, because the probability for approval is high, online loans will not usually help in bumping up your credit score.
3. Higher Interest Rates
Like what economists say, “There is no such thing as a free lunch.” With the convenience that online loans provide and higher risks absorbed by lenders, online loans usually have higher interest rates as compared to credit cards or personal loans. It’s important that you compare interest rates among different kinds of loans before you apply for an online loan.
If you don’t have a good credit score yet, you might need to take one that has a higher interest rate; this will be the price you pay for not establishing a good credit score. However, if you already have a good credit score, a different loan might be more suitable for you, particularly one that could give you a lower interest rate.
Another thing you need to consider when applying for a loan is security. Usually, when lenders release money, they get collateral in return. With online loans, there is usually no collateral required, which means that online loans are usually unsecured, and that you can borrow money without fear of losing your assets. If ever you fail to make a payment, your assets will not be taken away by lenders. However, your credit scores will go down.
5. Bank Account Access
One more thing that you need to consider before applying for online loans is that lenders will have access to your bank account to credit the loaned funds, allowing them to deduct the principal and interest payments on the due date.
Because of this access, you need to be able to manage your finances better as your lender can automatically deduct payments from your account, saving your account from being marked past due to accidental missed payments.
6. Avoid Scams
There will be numerous websites offering online loans for you, but it is important to take everything with a grain of salt. While there are legitimate online loan providers, some of these online platforms are bogus.
To prevent being scammed, you must protect yourself by doing your own research and reading reviews on the Internet about these online lending platforms. Before giving out your personal data, make sure you find out everything you need to know about the lending company of your choice, including its history, management, ownership, and products.
7. Other Charges
Before you apply for an online loan, it is your job to make sure that there are no other charges aside from the interest fees. Remember that you will grant the lender access to your bank account. If that’s the case, they can also deduct any hidden charges, which might be difficult to reverse.
Ask your lender for a list of all the possible charges so that you wouldn’t get surprised by any kind of debit memos. Legitimate and reliable lenders should be transparent about their charges. If an online lender doesn’t disclose everything to you, then this is a sign that you should walk away and look for another one.
Online loans can be very convenient and accessible, but you need to make careful evaluation of various online loan platforms before applying for one. Now that you already know the things you need to take into account, you can intelligently weigh the advantages and disadvantages of applying for an online loan.