How to Compare Loans Online

Look at these factors to choose the right online loan for your financial situation:

  • APR range. Whenever you can, prequalify to check your odds of approval and to receive an estimated APR, monthly payment and loan amount. Then compare prequalified offers before you apply, which will trigger a hard credit inquiry that may cause a temporary dip in your credit score. Your loan’s APR should not exceed 36%, which is considered predatory.
  • Loan amount. Check the lender’s minimum and maximum loan amounts, but keep in mind that how much you can borrow will depend on your creditworthiness. Borrow only what you need and can afford to repay. Many lenders have online payment calculators to help you determine the monthly cost of different loan amounts.
  • Repayment period. How much time you have to repay a loan, or the loan term, varies based on your lender, your creditworthiness and your loan type. Choose an online lender with the shortest repayment terms you can afford, which pays off the loan quickly and accrues less interest.
  • Speed of funding. If you need money quickly, compare lenders based on their standard funding speed. Some may offer same-day or next-day funding, and others take several business days to process your loan.
  • Application process. How involved is the application? Does it require phone calls or visits to a branch? Make sure you meet the lender’s minimum requirements before you apply.
  • Lender reputation. Check ratings and reviews from the Better Business Bureau and Trustpilot, and ask family members and friends about lenders. You can get feedback about approval, customer service and rates.
  • Online loan features. An online loan may come with flexible payment dates as well as options to add a co-signer or co-borrower, to pay off the balance or pay ahead without penalty, and to refinance.

Pros

  • Convenience. You can complete the entire loan process from your computer or your phone. Application, approval and funding times are faster than traditional lenders.
  • Prequalification. Many online lenders allow you to prequalify with a soft credit inquiry that does not hurt your credit score and estimates your interest rates. Prequalification can help you comparison shop for the best loan offers without damaging your credit.
  • Quick comparison shopping. Online loan comparison services or websites can show you loan options and APRs based on your financial situation to help you find the right loan.
  • Flexible approval criteria. An online lender could be a good option when you need a loan but are new to credit or have a low score. Some lenders may also look at your bank transactions; consider your education or occupation; or use alternative credit data, such as rent and utility payments, which credit reports typically don’t include.

Cons

  • No in-person service. You may not have the option to speak to someone face-to-face if you have an issue.
  • Better offers elsewhere. If you have good or excellent credit, your bank could offer a lower rate than online lenders, and even credit unions may offer good rates on loans if you have less-than-perfect credit. Compare rates from both online lenders and traditional financial institutions to make sure you’re getting the best deal.
  • Loan minimums. If you need a small loan of $1,000 or less, you might struggle to find it at a good rate. A credit union could be a better choice.

Follow these steps when choosing an online loan:

Decide how much you need, and budget for monthly payments. First, can the lender give you the minimum loan amount you need and can reasonably afford to pay on each month?

Compare online loan companies. Make sure you consider lender ratings from the Better Business Bureau, and search for negative reports in the Consumer Financial Protection Bureau’s Consumer Complaint Database.

Prequalify for loan offers. Prequalifying is a no-risk way to understand the rates you can afford because it does not affect credit scores.

Review costs. Compare rates, terms, loan amounts and other factors. The online lender should disclose loan costs, including interest charges and origination and late fees. Make sure loan terms are clear.

Most online loans are safe, but scams – and bad deals – are out there. Here are signs that you’re dealing with a predatory online lender:

  • The offer seems too good to be true.
  • Loan costs aren’t clear, or information is limited.
  • The lender imposes high interest rates (above 36%) or fees well above average.
  • No credit check is required.
  • Payments aren’t reported to credit bureaus.

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