The internet has everything you can possibly think of, and it continues to grow. Online banking for example, has been around for decades, and in the past couple of years, online lenders are starting to catch up, albeit slower. Now, there are plenty of online loans to can choose from. The process is very much similar to getting a loan elsewhere, but they promise convenience and hassle-free transaction. But are online loans safe? Here is a thorough guide on how to keep yourself safe and secure while applying for a loan online.
What makes online loans different from traditional loans?
As with traditional loans, you will need to provide the lender with your personal information, including your present address, Social Security Number, current job, income, expenses, etc. The beauty with online loans is that, you can start the process and apply within minutes.
Many online lenders are financial tech companies. Some of them were launched and developed a few years after the 2008 recession. Also, to fund their loans, many online lenders partner with banks. Others get their funding through peer-to-peer model which connects borrowers and investors.
Many online lenders only offer personal loans, and they distinguish themselves from traditional lenders in different ways:
- Automated application process
Online lenders provide quick, easy, and hassle-free application for their would-be borrowers through their online platform using automation. Also, they use alternative data to quickly review the borrower and the loan request.
- They offer just one or two products
Rather than offering full range of bank services, most online lenders out there offer one or two products, such as a personal loan and personal lines of credit.
- They have wide variety of borrowers
Online lenders provide quick solutions not just for people with good credit, but even those with bad ones.
Benefits to applying for online loans
Quick and easy processing
Most online lenders’ focus nowadays is to make borrowing as fast and as easy as possible; they can almost tell instantly if an applicant is qualified or not, how much can an applicant borrow, and what the terms of payment will be. Traditional lender such as banks on the other hand, require a few days to process lending applications.
Better interest rates and cheaper fees
Also, online lenders can offer better interest rates and cheaper fees than their traditional counterparts. This is because they don’t have to deal with overhead and monthly operational costs as banks and credit unions with physical office spaces and branches.
High approval rate
Online loans have higher approval chances than traditional banks and credit unions, as the latter have grown more conscious in giving out loans over the years. While it’s not entirely difficult to get a loan from traditional lenders, they don’t easily give out loans in individuals with poor credit.
Online lenders on the other hand, use alternative info to approve the ‘creditworthiness’ of an individual, rather than their credit score. They look at debt-to-income ratio, utility payments, and even their social network data.
You can borrow against your assets
Many online lenders are unsecured. This kind of setup is definitely safer for borrowers’ assets, their credit score may drop if they fail to repay the loan, but their asset (i.e. car or real estate property) will not be repossessed or face foreclosure.
But how do you really find a trustworthy online loan lender? Here are some tips to help you find safe loans online.
Start with the well-known names
Start your search with the well-known lenders or lenders that have been in the business for years, especially those that are offshoots of banks. These companies have built their name and will not compromise their reputation.
Look for contact details
Taking a lone is a huge financial decision, which often times will require a lot of questions from your part. You want someone to answer your questions fast. Thus, it pays to check the contact details of their website. It should be complete, from email address, phone number and/or postal address.
Some legitimate companies may not display their emails on their site; rather they provide a chat support platform for their clients.
Look for a secured connection
The internet is a gold mine of information and opportunities, but it can also be a trap for unsuspecting users. Attacks and hacks are always possible, even from those seemingly trustworthy-looking websites. Thus, when visiting a lender’s website, make sure you look for a secure connection.
With a secure connection, it will be a lot more difficult for hackers to steal personal information and bank account details. This is crucial for websites that deal with sensitive information and financial details of their clients on a daily basis.
A secure connection starts with an padlock icon and SSL (https://) in their website address. To get this, website owners/business owners pay every couple of years to be subjected to rigorous testing to make sure their connection is safe for their customers. Though not absolutely foolproof, it’s a good indication that the website will protect your information.
Check their licenses
Be very cautious in reading their licenses, as it’s easy for fraudulent companies to copy licenses from other legitimate websites and display them on their site. To make sure their licenses are legit; check the license number on your state’s or federal registration website.
Look for transparency
You may have heard the horror stories before; a lender approves a loan, and then charge the borrower with hidden fees and steep interest rates they didn’t know about. Unfortunately, this is pretty common. Fortunately for would-be borrowers however, they’re easy to avoid.
As boring and tedious as they may sound, make sure you read the Terms and Conditions before you go through the process of the loan. Look for red flags, such as:
- Jargons that complicates the language. A legal document doesn’t need a bunch of jargons and complex language. The Terms and Conditions must be clear and easy to understand, the point of the document is to avoid confusion. If there’s something you don’t clearly understand from the document, be sure to clarify it to your lender.
- Vague repayment terms. Unclear and unspecific repayment terms should automatically raise a red flag. Last thing you want is to face hefty penalties when you miss a payment. Though there are no hard and fast rules for this, the lender should be able to provide you with the repayment specifics upfront, and be honest about the potential penalties. This should also be included in their Terms and Conditions.
- Excessive and overpriced fees. This is another automatic red flag, unless if you know about it before hand. Standard loans with the average APR however, should not come with exorbitant fees.
Do your homework and research on the company
A quick Google search should bring enough information you need about the company. The first couple of posts should show the company’s official website. Google’s search engine works by putting the companies with the highest number of traffic and most keywords, and the backlinks (references from other reputable sites) at the top of first page.
Newer companies with new website may not show up in search engine as much, but that’s still a good way to know about a company’s reputation. If you have to look for the company at the second page or further, then that company may not be as trustworthy.
You can also check out third-party sites, forums, and news article sites on the lenders you’re considering. There might be posts about the lenders that warn the public regarding dodgy practices, unforeseen problems, hidden fees, bad experiences, etc.
Check out news and stories about the lending company. You may stumble on announcements, press releases, or even outstanding lawsuits.
Read the reviews but take them with a grain of salt. Reviews may be informative, but some websites are paying people to make fake positive reviews about their business. Take note of the negative comments. You may ask your lender about these criticisms and get the assurance that these problems will not happen to you. A good lending company is cautious about their reputation, and they will be eager to provide you with the answers to put your mind at ease. Make sure you’re satisfied with their answers before going any further.
Common red flags
As the saying goes ‘If it’s too good to be true, it probably is.’ Here are common warning signs to watch out for:
- You’re 100% guaranteed for an approved loan
- They demand for an upfront payment
- They pressure you to accept their terms
- You can’t verify the website’s license
- There are weirdly too many positive reviews online
- You can’t find the borrower’s physical office when you search online
- You get unsolicited calls, texts, or emails asking you if you want to borrow money
- Their website doesn’t have the “https”
Frequently Asked Questions on Online Loans Safety
Are you looking for online loans to supplement your current financial situation? Before you go shopping for a lender, take the time to browse through the list of frequently asked questions below. You can find additional information you need to help you in choosing which lender to borrow from and how you can stay secure when applying for a loan.
How to apply for an online loan?
If you need to apply for a loan online, it only takes a few simple steps. The first thing you need to do is visit the lender’s website. There, you will find the information on eligibility requirements and the documents you need to submit. Once you have all the requirements ready, you can submit your application online. It is easy and convenient since you no longer have to physically go to the lender’s office and everything can be done at home in your computer.
What makes online loans different from bank loans?
There are a few obvious differences between online loans and traditional bank loans. The first and most obvious difference is the fact that you can process the former over the internet. There is no need to go to the bank as with traditional loans to process your application. As long as you have a computer and internet connection at home, you are good to go.
Aside from the convenience, online loans are also more lenient when it comes to their eligibility requirements. Therefore, people with bad credit are more likely to get approved for online loans whereas they would not typically qualify for bank loans.
Finally, online loans offer more flexibility in terms of interest rates and loan terms. Most online lenders are able to accept flexible terms as long as the borrower has proof of capacity to pay. Meanwhile, bank loans are often fixed when it comes to the interest rate they offer and the terms.
How much can you borrow with online loans?
The total amount of money you can borrow through an online loan varies according to the lender and your credit score. An average online loan can let you borrow as little as £150 to as much as £1,500. This money will be deposited direct to your bank account once you are approved for the loan.
While it might be tempting to borrow more money as long as you qualify, it is important to note that you might be charged with a higher interest rate with online loans. Therefore, borrow only as much as you need (even if you qualify for a higher amount).
What can you use online loans for?
There are several uses for online loans, if you do get approved. You can use them to cover unexpected expenses or emergencies. You can also use them for a purchase of a big item or to cover for a holiday expense. Most lenders do not require you to provide a purpose for the loan and it won’t affect your approval rate, as well. The only thing that lenders ask is if you have income source and are capable of paying off the loan.
How long does it take to process online loans?
It depends on the type of loan and the amount of money you wish to borrow. However, you can expect that online loans will be processed much faster than traditional loans due to the streamlined process. For loans with smaller amounts or short-term ones such as payday loans, some can even be processed within a day. But for other types of online loans, you can expect it to be processed in a matter of days (but definitely no more than a week).
What fees can I expect with online loans?
When you obtain an online loan, you will be asked to pay an interest rate on top of the money you borrow. This is basically your payment for being able to borrow the funds you need. The fees and other charges will vary from one lender to another. Some have processing fees while others don’t. Another fee that you can expect is the penalty charge if you are late on payments, or if you are unable to pay the loan at all.
It is best to read the fine print of your loan agreement so you know what fees to expect and how to avoid charges.
Can I apply for an online loan even if I have bad credit?
Yes. There are many lenders out there that can provide loans even when you have bad credit. However, you might find that your interest rate is higher than those with good credit. If you have bad credit, it is recommended that you spend more time shopping around various lenders. This will allow you to compare the prevailing rates and choose the ones that offer the best rate available.
Avoid lenders that claim they offer no credit check loans. In the UK, it is illegal to offer loans without conducting a credit check. The FCA, which governs all financial service firms in the UK, requires all lenders to conduct a credit check. Therefore, any lender that claims otherwise should make you feel wary as they might not be legitimate.
A credit check is a must even if you are unemployed or on benefits.
How can I know if a lender offers safe loans online?
You need to take steps to ensure that you are safe when applying for online loans. The worst thing that could happen is for your personal and financial information to fall on the wrong hands since they can use that information illegally.
The first way to ensure that a lender offers safe loans online is to check if they are regulated by the FCA and if they belong to any major financial organisations in the UK. The next thing to consider is if they have security encryption on their website, such as the padlock icon on the URL bar. This will signify that the lender’s website is secure and that your personal or financial details are safe. It is very common for hackers to break into websites to steal information and the security encryption is one way you can prevent that from happening.
How do you ensure that your personal and financial information are safe?
The only way to ensure the security of your personal and financial information is to choose a reputable lender. A lender that is governed by regulating bodies such as the FCA abide by the law and are honest in how they handle your information. Make sure you choose the lenders you are dealing with wisely.
How do you compare lenders in the UK?
When looking for the best lenders to borrow from, make sure they are reputable and legitimate. How do you determine this? First and foremost, check to see if the lender is regulated by the FCA or Financial Code Authority. They are the ones responsible for governing all financial service firms in the UK. They also mandate that all lenders conduct credit check on all types of loans, no matter how small.
The FCA also ensures that all borrowers are protected from unscrupulous rates on their loans. As a borrower, you want to deal only with lenders who are regulated by the FCA for your own protection and security.
Are lenders that offer no credit check online legitimate?
No. According to the FCA, all lenders must conduct a credit check on all borrowers – no matter how small the amount you are borrowing. A credit check is a must but do not be wary because this is only a soft credit check so it won’t hurt your credit score. If you encounter a lender that claims to offer no credit check loans, then you should definitely stay away from them.
How will I receive the money?
For your own safety and security, the money you borrowed (subject to approval) will be deposited directly to your bank account. Hence, you no longer have to visit the lender’s office to get the cash yourself. Instead, it will be transferred electronically for your convenience and safety. Make sure to provide the correct bank account details to ensure that it is deposited to your account.
What are the benefits of borrowing online?
Nowadays, most lenders (especially in the UK) operate online. If you need to get extra cash, you must apply for online loans. There are plenty of benefits to choosing to borrow online. One of them is the convenience – you can process everything online so it saves you time and effort.
While there are certain risks involved with borrowing online, this risk is mitigated by the fact that online security systems are more advanced now than ever before. Therefore, you can rest assured that any information you provide to the lender online is safe and won’t get in the hands of individuals who will try to exploit that information.
What are the risks of borrowing online?
As mentioned above, there are certain risks involved when you get your loans online. First and foremost, there are plenty of scammers out there that are posing as legitimate lenders. Be very cautious when choosing who you are dealing with to make sure that they are truly as they claim to be. For your own safety, it is best to verify the lenders with a regulating body in the UK to give yourself the assurance that they are indeed legitimate and reputable.
How can you find safe online loans when working with Money Pig?
When you work with us at Money Pig, you can be rest assured that you are dealing with a legitimate and FCA-licensed lender in the UK. We only work with legitimate and reputable lenders to ensure that we can provide you with a trusted lender to get your loans from. Therefore, you can save yourself time and effort in doing your own research to find legitimate lenders to borrow from online. At the same time, you can also verify that these lenders are regulated by the FCA so you can get fair and reasonable rates on your loan.
If you want to have peace of mind when accessing funds through online loans, then you can rely on Money Pig. We offer a bespoke service that helps match you with the right lender. You can be rest assured that we abide by the regulations of the FCA in the handling of your personal and financial information. We use it solely for the purpose of finding the best lender to match your needs when it comes to choosing the best loans and rates.