Where do you go to get a loan? Before you even start planning for what you’ll do with such a loan, you need to answer that question. Can you trust online lenders? Do you even stand a chance at the local bank?
You can trust some online lenders, as small businesses and individuals use them all of the time. And your bank might be more willing to work with you than you think. Still, the key differences between online and in-house might make your decision for you.
Three considerations – lending online vs. lending from the local bank
Interest rate to be compared
This is all about money, right? Well, the bottom line is that banks tend to lend more money than online lenders. If you’re approved by a brick-and-mortar institution, you’ll probably not only get a bigger loan but a lower interest rate.
With online loans, you’ll have to pay attention to the terms and weigh whether or not the interest rate is worth it to you.
Take the time to calculate much you’ll be paying exclusive of the actual principal. Depending on your credit score and the lender you choose, you could pay interest rates exceeding 30% (and much higher), which is a pretty raw deal.
But, I got a better rate for my mortgage at an online mortgage lender. So check with multiple online institutions for your loan needs. Online lenders don’t pay for physical office space, they have a headquarter, a technology development center. But they don’t have a branch network and as a result, they can afford to lend you money at a lower interest rate.
There is too much online competition going on to earn the top spots among various online lenders. These fintech firms are willing to suffer losses for a few years to maintain the top spot among online lenders. As a consumer, you should take advantage of and check with multiple lenders online.
I am sure some of the online lenders would be able to beat the price that your local bank offers.
Online requires less documentation and paperwork
Still, many people like online lenders because of their convenience. The first evidence we see of true convenience is in the absence of documents required to apply and gain approval for these loans.
When you apply for a loan from a bank, it’s best that you’re armed with a lot of paperwork, in addition to paperwork the bank will generate during the process.
Your required documents might include tax returns, a business plan, financial statements, and more. With online lenders, you still need to provide personal information, including financial statements, but overall, borrowers here find that it’s less of a headache.
Time to disburse the loan
If you need a loan fast, a physical bank might not be for you. In some cases, going to the bank can be a blessing, since you don’t want any loan to be a decision you make impulsively.
Take a look, and you’ll find that many online lenders offer their customers approval in as little as a day. An in-house local bank, loans can take months to go through.
Why is this?
For one, you may have caught on that online lender have less tight criteria for approval altogether. They compensate for this with those higher interest rates.
Secondly, they leverage the power of technology to make the process go that much faster. Even today’s banks do their fair share of manual paper pushing, but with online lenders, automation rules.
This is why people end up using online lenders in a pinch. Meanwhile, if you’re looking to buy a home, you’d have less of a problem waiting for a bank to pull through.
Online lenders are fast and convenient, but their loans can come with very high-interest rates. In-person bank loans offer the best interest rates, but approval is harder to come by, and it can take time to get the final answer.
If you want to make a smart financial decision, ensure you have just enough time to shop for the institution that’s likely to approve you, without completely compromising on the interest rate.