Online loans with monthly payments are just like traditional personal loans, with a few exceptions. Banks are not the only lenders offering these types of loans, and the loan process (from decision to disbursement) is usually quicker. Online personal loans both require and easily facilitate the same kind of careful deliberation as other financial decisions. Finally, a common misconception of online personal loans is that they are the same as payday loans. The reality is that these are two entirely different financial products targeting different lending segments.
Online Loans With Monthly Payments: Overview
The financial service that most people will use in their lifetime is some form of loan (e.g. mortgage, refinancing, etc.). But loans don’t just have to be for homes and automobiles, there are personal loans available as well. Online loans with monthly payments are a relatively new version of the everyday personal loan. Is this article we will be taking a closer look at online personal loans. What these loans are and what they are not.
Suppose that you have an unexpected emergency that leaves you needing a large influx of cash. A personal loan can provide the cash you need with greater fiscal stability than a credit card offers. If you’ve been reading our content, then you already have some basics of how a loan works. A lender provides you with a sum of money on the condition that you will pay that money back along with the agreed-upon interest within a set period.
Personal loans are no different, and banks act as the primary lender. But here is a difference between traditional personal loans and online loans with monthly payments. The financial mechanics of online loans with monthly payments are the same, but a bank is not always the lender.
Online Loans VS Traditional Loans
There are other differences between online loans and traditional personal loans beyond the question of who is doing the lending. For one, the decision and disbursement process of an online loan is considerably faster than the brick-and-mortar counterpart. Compared to the swiftness of online lenders, banks can take days or weeks to make their decisions. Some online lenders are able to provide loan approval within minutes. Disbursement of funds can be done within 24 hours. It is easy to understand how being able to quickly get the money you need in an emergency would be considered an advantage.
Another advantage of online loans is that the very nature of the industry segment facilitates the research needed to find the right lender. While the above scenario for needing a personal loan is portrayed as an emergency scenario, it would be a very bad financial decision to take the first loan you find. Though an unexpected emergency is not an ideal situation, you still need to make the same, rational deliberation that you would with any major financial decision. That means you need to compare the rates and terms of lenders; you don’t want to sign an agreement that gets you out of one bad situation but puts you into another one. Online lenders and financial information platforms can provide you with the information you need to locate and compare online lenders in real time.
Given their advantages, you can see why online personal loans with monthly payments are so popular. There was an 18% increase in the use of personal loans from 2013 to 2015, and the use of online personal loans was included in that increase. Online lending has proven to be both a viable and reliable alternative to traditional lending.
Examples of institutions providing these types of personal loan are SoFi (6.28-14.87% APR, loan terms of 3-7 years) and Prosper (6.95%-35.99% APR, loan terms of 3 or 5 years). Examples of bank divisions offering online personal loans are Marcus, which is a division of Goldman Sachs (6.99%-24.99% APR, loan terms of 3-6 years); and LightStream, a division of SunTrust Bank (4.99%-14.24% APR, loan terms of 2-7 years).
Online Loans VS Payday Loans
Having covered what online personal loans with monthly installments are, we need to take a look at what they are not. Most people tend to (inaccurately) conflate online personal loans with payday loans. In reality, these are two completely different financial products. The most significant difference between the two is that payday loans are not installment loans like online loans with monthly installments. Payday loans need to be paid back within a month’s time (or less) in most cases. And to ensure that this occurs, the lender will often account.
The second difference between online personal loans and payday loans is also where we find the reason for the latter’s above practice. You need a healthy credit score to secure a loan. But how can you find a personal loan when your credit is poor? That is where the payday lenders come in. Their customers are primarily those people with poor credit who desperately need a personal loan. But because people with poor credit are by definition a very dangerous financial risk, the payday loans are structured to ensure that the lender gets their money back no matter what. Given the fact that payday lender fees for two-week loans are equivalent to APRs of 400% you could perhaps argue that these lenders are less “catering to” and more “preying on” a desperate economic segment. Regardless, payday loans and online personal loans are not the same things; online personal loans represent a better, more stable financial option than payday loans.