The increase in online lending since the 2000s has made unsecured personal loans more accessible to people seeking funding for things like home improvements, debt consolidation, or vacations, just to name a few.
Online lenders have been embraced particularly by Millennials and GenZers, generations that are no strangers to technology — financial technology in this case — and disrupting traditional industries. For prospective borrowers of any age group, the convenience of applying for a personal loan online can be an advantage over a more traditional process.
Read on to learn some of the key advantages of getting a personal loan from an online lender, as well as when a traditional bank might be a better option.
The convenience factor is one of the biggest advantages of getting an online personal loan. Younger generations of consumers might be drawn to a process that incorporates the technology they’ve grown up with and are comfortable using. But online lenders often have a streamlined application process that might appeal to people of any generation who are comfortable with technology.
Online loan applications can be completed from anywhere a prospective borrower has an internet connection, preferably secure. In addition, online lending websites often have thorough lists of Frequently Asked Questions (FAQs) to give consumers as much information as possible without the need to travel to a brick-and-mortar bank branch.
💡 Quick Tip: SoFi lets you apply for a personal loan online in 60 seconds, without affecting your credit score.
The lack of brick-and-mortar locations is a reason that online lenders can often offer competitive rates on personal loans. Without physical bank branches to maintain, their overhead is likely to be less than a traditional bank’s.
Some online lenders, however, may try to generate profits by charging fees. When shopping around for personal loan rates, you’ll want to be sure to compare annual percentage rates (APRs), which includes any fees. This allows you to compare loans apples to apples.
Recommended: APY vs Interest Rate
Some online lenders are able to offer preapproval to prospective borrowers with just a soft inquiry on their credit report that won’t affect their credit score. One benefit of knowing quickly what rate might be offered is being able to compare rates among multiple lenders to find the one that will be the best fit.
After the application and loan approval, some online lenders distribute loan funds in as quickly as a few days. For people who need access to funds quickly, this could be the determining factor in choosing a lender.
Recommended: What to Know Before You Borrow Money Online
Someone who has not built a credit history might have difficulty being approved for a personal loan. Some online lenders, however, are willing to look at factors other than credit score in determining approval for a personal loan and may have more flexible qualification criteria than a traditional bank.
There are also some online lenders that cater specifically to underserved populations.
What About Traditional Banks?
Even though online lenders are well established in the financial world, traditional banks still make sense for some people or some financial needs.
For people who prefer working with a lender in person, a traditional bank or a credit union can be a good choice. If there is already a relationship in place with a particular financial institution, it may be advantageous to build on that and get a personal loan rate quote from that lender.
In some situations, a personal line of credit (LOC) might be a better option than a personal loan. Though online lenders are beginning to offer LOCs, they are more likely to be offered by banks or credit unions.
💡 Quick Tip: Choosing a personal loan with a fixed interest rate makes payments easy to track and gives you a target payoff date to work toward.
From Disrupting to Redefining
Online lenders and traditional financial institutions are realizing that they can meet the needs of more consumers if they work together.
Today’s modes of banking may be less about disrupting the status quo of lending and more about finding a new definition of banking as a whole. Those same Millennials and GenZers who might have started a disruption in the financial industry may also be the ones to usher in new ways of doing business.
If you’re thinking about taking out a personal loan, the great news is that you have plenty of lenders to choose from, including traditional banks, credit unions, and online lenders.
Online personal loans come with certain advantages — they make it easy to rate shop, and typically offer a fast and convenient application process. Online lenders also tend to be faster to fund than traditional institutions. However, you may want to go with a local bank or credit union if you have an existing relationship there, or you want to have the option of in-person customer service.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.