Online or In-Person Loans: What’s Better?

Consider what's more important to you: quickness and convenience or talking face-to-face with a lender at a bank.

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On a similar note...
Online or in person: What’s the better way to get a loan?

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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 most.

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

No matter your preference, the best choice of lender is usually the one that offers the lowest interest rate. Always compare offers from multiple lenders to get the loan that best fits your needs.

Online vs. bank loan: Pros and cons

Online loans

Bank loans

Pros:

  • Typically offer pre-qualification that doesn't impact your credit.

  • Faster loan approval and disbursement, sometimes within the same day.

  • Lower operating costs can mean lower rates for consumers.

Pros:

  • Having a preexisting relationship can mean higher approval odds, lower rates or more favorable terms.

  • Face-to-face personalized service to help through the application and loan management processes.

Cons:

  • Fully online loan application and approval process means consumers must be comfortable submitting forms and personal financial information with minimal personal interaction.

Cons:

  • Typically no pre-qualification process that lets you see loan rates and terms without impacting your credit.

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

  • Loan approval and disbursement may take several days or longer.

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 as safe as loans originated from large banks, provided that the online lender is reputable.

A reputable lender, online or otherwise, typically checks your credit, discloses the costs and terms of the loan and checks to verify that the loan won’t wreck your finances before approving your application.

Would you pay for personalized 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 personal interaction and the security 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 like to just know that there’s a … person that makes sure the loan goes through smoothly for them," he says.

Also, you may have the opportunity to negotiate a lower rate or qualify with a lower credit score if you’re talking to a person you already have a relationship with at a bank, Simonson says.

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

How fast do you need the money?

If you need a loan quickly, online might be the way to go.

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 the same day you apply, or the following business day.

Lenders with an online presence can also expedite your research process if they post their rates, says Todd Nelson, senior vice president with LightStream, the online lending arm of Truist Bank.

"If you’ve got good credit, you don’t really worry whether you’re going to get approved," he says. "What you’re more concerned with is, 'Am I going to waste my time with applying for a loan and getting back an offer I don’t want?'"

Are you comfortable using an online lender?

For an online loan application, you’ll need to electronically share information like your Social Security number, education history and bank account information, which might require granting the lender access.

Especially in those cases, beware of scammers. Wisconsin-based CFP Ben Smith with Cove Financial Planning says that if you don’t feel confident that you can tell whether an online lender is legitimate, the safest option would be a physical bank.

Managing a loan online, which typically means your only contact with the lender is via a customer service representative, can prove challenging for folks who aren’t financially or technologically savvy, Jackson says. If this is you, the online-only experience may not be a good fit.

Where can you get the best loan?

Regardless of whether it’s from an online lender or a bank branch, the best loan is the one with costs, terms and features that match your needs. Comparing multiple offers from both bank and online lenders can help ensure you’re getting the best value for your situation.

Simonson says that if you have less-than-desirable credit or are seeking a loan for a nontraditional reason, a community bank or credit union might be more willing to take on the risk of lending to you than a big bank or online lender would be.

Some online lenders let you pre-qualify and see your potential rate, which is helpful information to have as you shop around. You can also pre-qualify with multiple lenders on NerdWallet, and doing so won’t affect your credit score.

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