Online or Personal Loans: Which Is Better?

More financial technology companies are offering personal loans online. But whether an online or in-person loan is better for you depends on what you value the most.

If you prefer a personalized experience, opt for a traditional brick-and-mortar bank. If you want fast financing and other modern conveniences, an online lender can make sense.

Regardless of your preference, the best choice of lender is usually the one with the lowest interest rate. Always compare offers from multiple lenders to get the loan that is best for you.

Online vs Bank Loan: Pros and Cons

  • Usually offer pre-qualification that will not affect your credit.

  • Faster loan approvals and disbursements, sometimes within the same day.

  • Lower operating costs can mean lower rates for consumers.

  • Having a pre-existing relationship can lead to higher approval rates, lower rates or more favorable conditions.

  • Face to face personalized service to assist with the application and loan management processes.

  • The fully online loan application and approval process means consumers should feel comfortable submitting forms and personal financial information with minimal personal interaction.

  • Usually there is no pre-qualification process that allows you to see the loan rates and terms without affecting your credit rating.

  • Costs for operating physical locations can be passed on to customers in the form of higher rates.

  • Loan approval and payment can take several days or more.

Here are five questions to ask when choosing between a bank loan and an online loan.

Are Loans From Online Lenders Safe?

Loans from online lenders are just as safe as loans from major banks, provided the online lender is in good standing.

A reputable lender, online or otherwise, will typically check your credit, disclose the costs and terms of the loan, and make sure the loan won’t wipe out your finances before approving your application.

Would you pay for a personal loan service?

One of the obvious differences between bank and online lenders is the face-to-face exchange you can have at a physical bank.

If you value in-person interaction and the assurance of knowing who is handling your loan, a bank might be for you, says Eric Simonson, a Minneapolis-based certified financial planner and owner of Abundo Wealth.

“Some people just want to know that there is a… person who will make sure that the loan goes smoothly for them,” he says.

You may also have the option to negotiate a lower rate or qualify for a lower credit score if you’re talking to a person you’re already in a relationship with at a bank, Simonson says.

But the personal approach can come at a premium, says Oklahoma certified public accountant Kyle Jackson. He says brick-and-mortar banks tend to pass on consumer operating costs that online lenders don’t, which can result in higher rates or fees.

How soon do you need the money?

If you need a loan quickly, online may be the right choice.

Online lenders – and traditional banks with an online option – can sometimes process an application and make a decision more quickly than banks that don’t have an Internet presence, Jackson says.

Some of those lenders can fund the loan on the same day you apply, or the next business day.

Lenders with an online presence can also speed up your research process if they publish their rates, said Todd Nelson, senior vice president at LightStream, the online lending department of Truist Bank.

“If you have good credit, you don’t really have to worry about getting approved,” he says. “What worries you more is, ‘Am I going to waste my time applying for a loan and getting back an offer I don’t want?’ ”

Are you comfortable using an online lender?

An online loan application requires you to electronically share information, such as your social security number, education history, and bank account information, which may require access to the lender.

Especially in those cases, beware of scammers. Wisconsin CFP Ben Smith with Cove Financial Planning says that if you’re not sure you can tell if an online lender is legitimate, the safest option is a physical bank.

Managing a loan online, which typically means your only contact with the lender is through a customer service representative, can be challenging for those who aren’t financially or technology-savvy, Jackson says. If this is you, the online-only experience may not be suitable.

Where can you get the best loan?

Whether it is an online lender or a bank branch, the best loan is the one with the costs, terms and features to suit your needs. By comparing multiple offers from both banks and online lenders, you can ensure that you are getting the best value for your situation.

Simonson says that if you have less than desirable credit or are looking for a loan for a non-traditional reason, a community bank or credit union may be more willing to risk lending to you than a major bank or online lender would. to be. .

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