There are a variety of ways to borrow money when cash is needed. A few common places to start might be traditional banks or credit unions, or maybe a friend or family member who’s willing and able to consider lending.
If none of those options sound appealing, another option might be to borrow money online. Online lenders are becoming a more mainstream, acceptable alternative to traditional banks. What’s behind this increase in online lending, and what are some ways to borrow money online?
Why Have Online Lenders Grown in Popularity?
When lockdowns started in response to Covid-19 in 2020, people had to find different ways to do things they might have been accustomed to doing in person. Banking and other financial transactions were among those things. Brick-and-mortar banks limited access to branches or hours they were open, and retailers were hesitant to accept physical money. But transactions needed to keep happening, so consumers began moving online to complete them.
Familiarity, for Some Customers
A growing proportion of consumers is accustomed to using computers for many aspects of daily life, and making online financial transactions is no different. More people may be looking for things like:
• Online applications.
• Streamlined underwriting processes.
• Automated funds transfers.
A Different Kind of Personal Service
Whereas in the past, personalization meant having a face-to-face relationship with a banker, personalization in today’s world can mean information that is relevant to an individual’s financial needs. This might look like things that can be more quickly accessed online, such as:
• Personalized financial trends in a portfolio so they can make informed decisions about their financial goals.
• Insights about their spending and saving so they can budget monthly income and expenses to meet their needs.
Time Saving
Customers may also want an experience that saves time. Automating tasks is a timesaver that can easily be done with online financial tools. In the case of online lending, the option to set up automatic bill payments and automate other tasks are likely to be considerations when a customer is choosing an online financial company.
💡 Quick Tip: Some lenders can release funds as quickly as the same day your loan is approved. SoFi personal loans offer same-day funding for qualified borrowers.
Where to Borrow Money Online
When looking for an online lender, you may want to consider the reputation of the lender, safety precautions the lender has in place, or types of loan products offered. In addition, each person should determine their individual comfort level of doing business with or without personal interaction.
Banks
A traditional bank may be a good option for someone who is more comfortable sharing private financial information at an in-person meeting or who doesn’t know how to borrow money online.
Applying for a loan through a traditional bank might include a visit to a brick-and-mortar branch of the bank along with online components, making this a hybrid approach. Since traditional banks have upkeep costs related to physical locations, their fees or interest rates might be higher than other lending options.
Recommended: How to Get Approved for a Personal Loan
Credit Unions
Similar to banks, credit unions generally have physical locations, but may also have online services. Financial services offered by credit unions are similar to banks and other financial institutions. There are usually specific requirements to be a member of a credit union, such as employment-related or residence in a particular region, or membership in a particular group. Credit unions may offer member benefits such as low fees, high savings rates, and low loan rates.
Peer-to-Peer Lending
Peer-to-Peer (P2P) lending is akin to matchmaking. A prospective borrower submits an application with an online marketplace, which matches the applicant with investors. Some online marketplaces for P2P lending are Prosper, Upstart, and Peerform. P2P lending may be a good place to look for an online loan for someone who isn’t able to qualify for a loan from a conventional lender, or if an alternative funding source is preferred.
Recommended: What Are Personal Loans Used For?
Online Lenders
The lack of brick-and-mortar branches might deter some customers but attract others. The deciding factor for some customers might be how well the process works for them, with less emphasis on having a face-to-face interaction.
Another factor in choosing online lending over in-person may be the speed of the process. Online loans and other financial transactions can sometimes be completed faster than going into the physical location of a traditional lender. This may be important for people looking to borrow money online instantly.
Options to Think Twice About
Along with favorable options for lending that are available, there are some that may not bring about the best financial outcomes.
Credit Cards
At its core, a credit card is a short-term loan — specifically, a line of credit. If the account balance is paid in full before each month’s due date, it’s a no-interest loan. Financial drawbacks arise, however, when that balance is not paid in full each month, carrying over a balance due.
Credit card interest rates tend to be high, and they accrue on any unpaid balance, compounding what is owed in the next billing cycle. The average credit card annual percentage rate (APR) is currently 24.45% for new credit card offers. Even for existing customers, the APR is high, at an average of 20.68% currently. It’s easy to see how this can lead to a cycle of debt. Paying off a loan over time is probably more efficiently done with other financial tools.
Recommended: Personal Loan Calculator
Predatory Lenders
When people look for fast cash, there is probably someone out there who is willing to lend it to them — at a cost. If it seems like there is no other choice available, some people may take on a loan that can be difficult to pay off. Repeat borrowing is common with these types of loans.
• Payday loans are short-term loans, typically to be paid off in the borrower’s next payday. Interest rates are extremely high, often 400% or more.
• Title loans or pawn loans use a borrower’s vehicle or other item of value as collateral. The APR on a title loan can be as much as 300%, and lenders often charge additional fees.
💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.
The Takeaway
Choosing a lender depends on different factors for different people. Traditional lenders, online lenders, alternative lenders — each can be a valid choice for different financial needs. With online lenders becoming more commonplace, with established reputations in the financial marketplace, looking at options among them might be a good choice.
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.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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