If you’re not big on the idea of driving all the way to a lender or making long phone calls, the idea of online loans would definitely be appealing for you. Keep on reading to learn all the details concerning online loans.
What’s an Online Loan?
An online loan is basically a personal loan that you can apply for through the internet. It can either be a small amount, which goes as low as $50 with short-term repayments, a medium-sized loan, or a huge amount that is up to $150,000 with more extended repayment durations.
What Factors Affect How Much I Can Borrow?
There isn’t a certain range for which you can borrow from an online loan; it depends on a couple of factors, which are as follows:
1. Credit Score
The most important factor on which lenders base their approval and instant money loan amounts is the borrower’s credit score. The higher that score is, the easier it would be for a borrower to get approval for their request.
However, the minimum credit score to acquire a loan differs from one type of loan to another and from one lender to another. But, generally speaking, bigger loans, like those for a personal vehicle, buying a house or starting a business, require much higher credit scores.
On the other hand, weekend private finance loans, instant loans for unemployed bad credit, or instant cash loans usually provide the borrower with much smaller amounts, and that’s why their minimum credit scores can be as low as 300 or 400.
2. Unsecured vs. Secured Loans
Secured payday loans online allow you to take out much larger amounts, especially if the loan you’re getting is to buy a physical product like a vehicle or house. This is because, with secured loans, you provide collateral, which the lender can claim in the case that you default or if you’re unable to pay back the settlement loan.
On the other hand, unsecured bad credit same day loans, which require no collateral, are more conservative in the amounts allowed, as the lender wants to secure themselves against huge losses. Still, some lenders allow you to take out massive urgent loans with very high interest rates, which can reach up to 38%!
Tip: Always beware of large loans with high interest rates, as they can be offered by loan sharks. Those entities aim at your inability to repay the loan, which accumulates interest on you, causing you to fall into huge amounts of debt owed to them.
What Should I Consider When Applying for an Online Loan?
The following couple of factors are the most important ones -along with the secured vs. unsecured aspect mentioned above- to consider to choose the online loan that best suits your needs.
While the accessibility to the funds may not be the most important factor to consider when it comes to loans, it pertains to online ones specifically as this is one of their distinctive features. Some online loans can be granted on the same day and within hours, as long as you’ve applied and gotten approval within business hours.
This is why a lot of people opt for online loans and overnight borrowing rate when they’re in need of instant cash, like the case of payday loans, weekend loans, and of course, medical procedure ones.
The APR refers to the Annual Percentage Rate, which is the interest that would be added to your monthly repayments. Naturally, the lower this number is, the better, and the best way to get the lowest deal is to have a solid credit score and a history that shows you’re a trustworthy borrower.
APR can vary between 6% and 36%, and it is the most effective way to compare between two loans, types of mortgage loans in Australia as it converts the comparison to an apples-to-apples one.
With longer terms come heftier total costs, especially with smaller amounts. With most loans, you’ll pay a good sum in interest, which would make the cost exceed the principal’s value. However, with higher interest rates, you could end up paying double the amount in interest if the loan term is long enough.
That’s why it’s always better to minimise the gamblers loan term to the shortest possible period. However, with shorter terms, you’ll have to make bigger monthly repayments, so make sure you find the break-even point between the two factors.
Fixed vs. Variable Interest Rates
To pick between fixed and variable rates, you have to decide whether you want to take the risk of a variable (floating) interest rate. You have to consider the risk of the interest rate rising, which means you incur more expenses when the idea of the rate falling tempts you.
There’s always a trade-off between the risk of variable rates and the fixed one’s stability, which allows you to create budget plans and prepare for the month’s expenses ahead of time and for as long as the duration of the loan.
Any loan comes with associated fees, which can affect the loan’s final cost. The basic and constant one is the establishment fee, which is 4% of the total amount.
There is also an origination fee for processing, a dishonour or a late fee for delaying repayments, and an early fee when you pay the loan back earlier than expected. These charges are always mentioned in an online loan application.
How To Apply for an Online Personal Loan?
Most online lenders have loan calculators in which you input the loan amount and repayment period; then, it automatically calculates your expected interest based on the standard interest rate and, therefore, the final total amount.
However, after providing your personal information, bank details, and contact information, a representative might reach out to you with different calculations based on the inquiries and credit checks they run.
And in the worst-case scenario, your loan might be disapproved in the case that your credit score and history were too problematic for the lender or didn’t reach the minimum requirements for certain easy to get loans.
For the tech-savvy users out there, online loans seem to be a much better method to apply for a loan as it takes up less time and effort. Not to mention, they give you faster access to funds, which is ideal in emergency situations.