The internet has changed the way we do a lot of things and for the better. One of those things is borrowing money. Pre-internet, if you needed a loan you had four loan options; going to a bank, payday loans, borrowing from friends or family, or a loan shark.
Payday loans have triple-digit interest rates and often start a cycle of borrowing that is hard to break. Borrowing from friends and family is fraught with all sorts of pitfalls, not least of which is destroying the relationship between borrower and lender. And of course, owing money to a loan shark could get your legs broken!
So most people who needed to take out a loan turned to traditional financial institutions like banks or credit unions. But getting a loan from a bank or a credit union comes with some problems. One problem became apparent during the Great Recession.
Stung by billions of dollars in bad debts, U.S. banks are tightening standards for lending, making borrowing costlier for the consumers and companies that are the best hope for keeping the limping economy out of recession.
Banks stopped lending money to anyone that didn’t have sterling credit. And while they’ve loosened the purse strings, if you’re a consumer with credit difficulties, banks and credit unions may not approve you.
Another problem is the application process. It can require reams of documents and personal information and take a few weeks to find out if you’re approved. Some banks notify you by mail, snail mail! Once approved, it takes a few more days before receiving the money.
But if you need a loan and want to avoid all of this, we’ll show you where to find the best online loans.
What are Online Loans?
Online loans aren’t different from traditional installment loans in that for both, you borrow money and pay it back in fixed monthly payments including interest over the term of the loan. But there are some key and advantageous differences.
The lenders we recommend here are legitimate which means that all of them will have a minimum credit score for approval. You can find online lenders that don’t check credit history but they are often payday lenders who charge outrageous interest rates.
Online lenders will often make loans to consumers with less than ideal credit. Those borrowers will be charged a higher interest rate but they’re more likely to be approved through an online lender than a bank or credit union.
The whole process of getting an online loan can be handled, well, online! Borrowers can window shop for the best interest rate and terms without impacting their credit score. Most online lenders can show you your rates in about two minutes.
You don’t have to go into a bank with a briefcase full of documentation. All forms can be transmitted online. Approval can happen within minutes and funds can be deposited into your bank account the next business day.
And saving the best for last, many online lenders have better interest rates than traditional financial institutions.
Many online lenders don’t have the overhead banks and credit unions have. They don’t have brick and mortar locations and they have far fewer employees. They pass these savings on to borrowers in the form of lower interest rates.
What Can You Do With Online Loans?
Anything you want really. When you’re filling out the loan application online some of them don’t even ask what the money is for. And if they did, there’s nothing stopping you from lying. What should you use online loans for? Real financial needs.
Federal student loans have pretty low-interest rates already (and come with certain protections) but if you have private student loans, you may be able to get a better rate with a loan online.
If you have an emergency expense and no emergency fund, an online loan is a good alternative to a cash advance on a credit card. Credit cards already have high-interest rates and cash advances often have a separate, even higher rate.
Additionally, there is no grace period. The second you take out the cash advance, the interest starts accruing.
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Most people borrow relatively small amounts of money but some lenders offer loans up to $100,000 so if you have a major expense like a home renovation, you can finance it with an online loan.
Medical or dental expenses are another legitimate use for online loans. If you have medical or dental insurance with a high deductible, a loan can help you meet it so you can afford the care you need.
What online loans should not be used for are as a long-term financial solution to a spending problem. Yes, you can pay off credit cards with an online loan and save money on interest but you still have debt. A loan coupled with credit counseling can be a solution.
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How To Apply for Online Loans
Each lender has its own loan application process but in general, this is how to apply for an online loan.
- Fill out basic personal information like name, address, phone number, date of birth and Social Security number.
- Provide financial information like employment status, income, bank account information, the amount you want to borrow.
- Upload any documents requested such as pay stubs or tax forms.
Based on the first round of information, you’ll get an offer or be turned down based on a soft credit check. If you accept the offer, you’ll provide the rest of the information and be subject to a hard credit check.
Once you receive final approval, the money will be sent to your checking account often as quickly as the next business day.
Some lenders will call to finalize details and some require you to print out, sign and scan back the loan documents but plenty of them handle the entire process online, no phone calls or signatures required.
Choosing the Best Online Loans
This is perhaps the best thing about online loans, you can shop! And you should! If you were buying a $20,000 car, you wouldn’t buy the first one you saw. You would shop at different dealerships, take those cars out for a test drive. You shouldn’t take the first loan offer you get either.
Interest Rates: This is the easy one. The lower the better and the interest rate will be prominently displayed when you’re window shopping for loans.
Fees: These are a bit trickier. Your interest rate is the cost to borrow money but there are often various fees that you’ll be charged too. An origination fee is usually a percentage of the loan amount. This fee can be as low as 1% or as high as 6%. There may be late payment fees, $15 or 5% of the remaining balance is common.
There may be a fee for an unsuccessful payment (bounced check or overdrawn debit card payment) and a fee if you make your payment by paper check. Another fee to be aware of us a prepayment fee. Lenders make money on interest and if you pay the loan off early, they lose money. This fee is meant to make up for that.
Terms: The term of your loan is how long you have to pay it off. Typically the loan term is three to five years. If your credit score is good and you only need a short-term loan, it may be worth shopping for a 0% APR credit card. During the 0% period, usually from 6 to 18 months, you don’t pay interest. If you pay off the balance before the introductory period ends, you’ve paid no interest.
The longer the term, the lower your monthly payment but the more you pay in interest.
Where to Find the Best Online Loans
There are seemingly more and more online lenders popping up every day. Some of them are cleverly disguised payday lenders and some of them charge high-interest rates and are chock full of fees. Don’t go into the woods alone! We did the work for you to find the best online loans.
Lending Club is a peer-to-peer lender. They match people who want to loan money as an investment vehicle to people who want to borrow money. They offer personal loans, business loans, auto refinancing, and patient solutions for medical practices. These numbers are for personal loans.
Minimum Credit Score: 600
Interest Rates: 6.95% to 35.89%
Maximum Loan: $40,000
Loan Terms: 36 to 60 months
Fees: Origination fee of 1% to 6%, $7 processing fee for each payment made by check, late fee, no early payment fee
Lending Club is a good fit for you if you have a healthy credit score, are a high earner, and have a low debt-to-income ratio. If you run into trouble making payments, you may be eligible for Lending Club’s hardship program. It allows borrowers to make interest-only payments for up to three months.
Prosper too is a peer-to-peer lender specializing in personal loans. Founded in 2005, Prosper is an OG P2P lender and have facilitated over $12 billion in loans.
Minimum Credit Score: 640
Interest Rates: 5.99% to 36.00%
Maximum Loan: $35,000
Loan Terms: 36 to 60 months
Fees: Origination fee between 0.05% and 4.95%, 1% annual loan servicing fee, a late fee of 5% of the unpaid amount or $15, no early payment fee
Prosper is a good fit for those with good credit and a high income although there is no minimum requirement, the average borrower makes about $89,000 annually.
Earnest offers both personal loans and student loan refinancing. These numbers are for personal loans.
Minimum Credit Score: 680
Interest Rates: 6.99% to 18.24%
Maximum Loan: $75,000
Loan Terms: 12 to 36 months
Fees: No origination or early payment fees. Returned payment fee of $8
If you have little to no credit history, Earnest may be the best fit for you. Many lenders will see a thin credit file and rubber stamp the application “No.” When determining eligibility, Earnest looks at more than your credit score. They also take into account your level of education, career, income, and savings.
LendKey specializes in refinancing student loans, lending for private student loans, and home improvement loans. These numbers are for student loan refinancing. They do not make the loans, rather they connect borrowers and traditional lenders but LendKey does handle all aspects of the process.
Minimum Credit Score: 660
Interest Rates: Fixed 3.49% to 8.93%, variable 2.7% to 8.96% (includes discount for autopay)
Maximum Loan: $7,500 to $125,000 for undergrad, $250,000 for graduate, $300,000 for medical, dental, and vet degrees
Loan Terms: 5,7,10,15, and 20 years
Fees: No origination or prepayment fees, late fees of $5 to $15 depending on the lender
LendKey is well known for its customer services and even offer some of the protections lost when refinancing federal student loans.
Laurel Road provides personal and student loans, student loan refinancing, and mortgages. These numbers are for personal loans.
Minimum Credit Score: 700
Interest Rates: 8.01% to 16.30% (includes discount for autopay)
Maximum Loan: $45,000
Loan Terms: 36 to 60 months
Fees: No origination or prepayment fees, late fees of 5% or to $28, whichever is less
If your numbers aren’t good enough to be approved for a personal loan on your own, Laurel Road may be an option. They allow co-signers which can not only improve your odds of being approved but can get you a better rate too.
Credible offers personal loans, student loans, and student loan refinancing. These numbers are for personal loans. Credible does not make the loans but matches borrowers and lenders.
Minimum Credit Score: 580
Interest Rates: 3.99% to 35.99% APR
Maximum Loan: $100,000
Loan Terms: 24 to 84 months
Fees: Fees are decided by the lender so be sure to read the terms of the loan agreement
If you need to borrow a lot of money, Credible offers loans up to $100,000. The downside of Credible is that the network of lenders they work with is smaller than that of similar services so it may lessen your chances for approval.
SoFi is best known for student loan refinancing but they offer personal loans too. These numbers are for personal loans.
Minimum Credit Score: 680
Interest Rates: 5.99% to 16.99% (includes discount for autopay)
Maximum Loan: $100,000
Loan Terms: A 2-7 year terms for Personal Loans and 5-20 year terms for Student Loan Refinance
Fees: No origination fee, late fees, or overdraft fees.
SoFi has some of the best rates out there but they also have some of the strictest lending standards. If you don’t have great credit, a high income, and a low debt-to-income ratio, you may not be approved.
Brave New World
Online lenders filled a gap left by banks in the wake of the Great Recession and have prospered.
…digital lenders in 2017 have seen steady growth in the space and will continue to do so in the coming years. Personal, small and medium enterprise and student-focused segments will originate $62.84 billion in new loans in 2021, representing a compound annual growth rate of 16.5% during the five-year period ending December 31, 2021.
Banks are like cabs and online lenders like ride-sharing services. For decades both had consumers by the throat providing inferior service at superior prices. But they were the only game in town. No longer.
Online lenders are eating banks’ lunch. Banks have realized it and are scrambling to keep up but they loathe to put much money into digital lending instead trying to cobble together outdated practices and technology in a way that appeals to younger borrowers born into a digital world.
They’re failing. If borrowers from those generations can’t do something online (get a job, a date, a meal, a ride, or a loan) they won’t do it. Add to that bad memories from 2008, especially for Millenials who graduated and were job hunting during the meltdown.
They know the role banks played and don’t trust them. They don’t trust banks, they don’t want to go into a bank and they don’t want to talk to a banker.
But these two generations represent billions of people. In 2019, Millenials make up 31.5% of the global population and Gen Z accounts for 32%. They’re going to borrow money, lots of it. And they will turn to online lenders. Sorry banks, you had your run. If you need a loan, give banks the boot and use an online lender.