What to know about online loans
Online loans make it easy to borrow money without visiting a bank in person. Online lenders offer a variety of loan products, including mortgages, personal loans and short-term loans.
The days of having to head to your local bank or building society are long gone, with lots of different types of lending now available entirely online. There are so many options, online lending can seem like a minefield so it pays to be prepared and understand what you are getting into.
Which loans can you get online?
Borrowers enjoy much the same range of options when it comes to finding a loan online as they do when looking to borrow in person.
If you need a home loan, then there are plenty of lenders who allow you to conduct most, if not all, of the application process online. What’s more, given the fact that many lenders in the UK are not traditional banks or building societies, in that they don’t operate through branches, you will likely have a wider range of options by searching for a home loan online than in person.
This is also true for second charge loans, which work rather like a mortgage in that they are secured against your property.
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Personal loans allow you to borrow up to around £25,000 and are unsecured ‒ you don’t have to put up an asset as collateral, like a property or car.
Again, a significant number of personal loan providers operate almost entirely online so you could benefit from a wider range of options by heading to the internet rather than the high street.
» COMPARE: Online personal loans
Short-term loans, like payday loans, exploded online a few years ago, offering people access to quick credit. In fact, you could have the money in your account within a very short time of applying online. Short-term loans are typically taken out for less than 12 months.
How to get a loan online
Ultimately the way that you get your loan will vary slightly depending on the sort of loan you’re going for.
With a mortgage or second charge loan, for example, you might opt to apply to the lender directly, or you might prefer to go through a mortgage broker. Brokers are independent advisers who can help work out the most suitable deal for you, and have access to some lenders and products that you can’t apply for yourself. Some brokers work primarily online.
» MORE: About mortgage advisers
Whichever route you choose and whatever type of loan you opt for, you’ll have to provide plenty of documentation to prove your income and identity.
You’ll also need to undergo a credit check so that lenders can establish both that you are who you say you are, and that you are likely to be a responsible borrower.
Advantages and disadvantages of getting a loan online
From a purely practical point of view, sorting out your loan online rather than in person is far more convenient. Rather than having to set up meetings with a lender to discuss your needs, you can apply for a mortgage, personal loan or short-term credit without getting off the sofa. There are also far more options available compared to just a few years ago, with many lenders operating only online.
Borrowing online is not without its risks though. It can be easy to get carried away, applying for too many loans in one go, without waiting to hear whether your initial application has been successful. Each application leaves a ‘footprint’ on your credit record, and too many of those in a short space of time can dent your score and make it harder to get credit in the future.
There is also the risk posed by scammers or illegal lenders who don’t follow the rules set out by the FCA. That’s why it’s crucial that you do your research on any firm you are hoping to borrow from, to establish that they are regulated and have clear contact details including an address, rather than simply a contact telephone number. If you find a lender that is boasting that they don’t credit check or carry out affordability assessments, then it’s in your interests to look elsewhere.
Alternatives to online loans
If you’re searching specifically for a short-term loan and don’t want to go down the route of using a payday lender, then it’s worth considering credit unions.
These are community organisations, run by members, in the interests of members, and they often provide loans at the smaller values which banks and traditional lenders aren’t interested in.
You will usually have to become a member before you can make use of their services though.
» MORE: About credit unions
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John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more