If you’re looking for a personal loan, your options are increasing. There’s the traditional route — visit a loan officer at your bank — or the more modern option of an online lender that can get you a loan virtually overnight, if you qualify.
Financial technology companies that offer personal loans online are encroaching on banks in the lending business. Fintechs originated almost half (49.4%) of unsecured loans in March 2019, up from 22.4% in March 2015, according to a recent study by credit bureau Experian.
While some large national banks don’t offer personal loans, others are responding to the competition with online offerings of their own. PNC Bank, one of the largest banks in the U.S., launched online personal loans this year to capture customers it couldn’t serve at brick-and-mortar locations, says senior vice president for personal lending Chris Dervan.
“Like many industries, there’s been a big trend toward digital, and that trend will continue,” he says. “But part of what we’re seeing is that there’s still a substantial customer base who likes that personal touch.”
The heightened competition means consumers can handpick where they get a personal loan, be it online or at a bank branch. Here are four questions to ask when choosing between a bank loan and an online loan.
1. 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 Oklahoma-based CFP Kyle Jackson. 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.
2. 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 SunTrust 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?’”
3. Are you comfortable applying for and managing a loan online?
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.
4. Where can you get the best loan?
The chief considerations when shopping for a loan should be its rate, fees and terms, Nelson says, rather than whether it’s from an online lender or a bank branch.
Some online lenders let you pre-qualify and see your potential rate, which is helpful information to have as you shop around.
Simonson notes 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.