Both an online loan and an in-person loan can provide you with money. However, differences do exist between the two loan methods.
Consequently, you may be wondering which is better for you. Let’s take a look at the two loan types, their pros and cons, and what you should consider to find the best loan for you.
What is an Online Loan?
Basically, an online loan is one that is handled without having to visit an office or bank branch. You manage the details of the loan process yourself, instead of dealing face-to-face with a loans officer.
An online loan isn’t necessarily better or worse than an in person loan. Its advantages and disadvantages just differ. It is up to you to determine whether you feel comfortable with this style of lending and whether it aligns with your values.
Advantages of an Online Loan
An online loan can be preferrable to an in person loan in many cases. Here are some of the most notable reasons why people choose the borrow online.
Convenience
Applying for a loan in person can be a frustrating experience. You must make an appointment and take time out of your busy day to visit the lender. This may involve navigating through traffic, finding parking, and then waiting to see a loans officer.
An online loan is definitely more convenient. Good online lenders welcome applications 24/7. The lending process, from start to finish occurs online.
Simplified Application Form
An online loan usually includes a very straightforward application form. The lender only wants several months of information to confirm your identity and your income, not the details of where you lived, worked, or banked years ago.
Pre-Approval
A good online lender uses a pre-approval process and a “soft” credit credit inquiry. This allows you to see what the lender’s offering, without lowering your credit score.
If you don’t like what you see, it isn’t a problem. You can continue shopping for a loan, since pre-approval is not a commitment.
Less Stringent Credit Requirements
Some online lenders consider much more than your credit when they assess your loan application. As a result, you may be able to get an online loan even if your credit score is low or you have little or no credit history.
May Get Better Rates Quickly
If you don’t have a relationship with a bank, an online loan may be your better option. You can develop a relationship with the lender quicker and qualify for better rates sooner.
No Paperwork
Some online lenders do not ask for paper documents to verify your income. Instead, they verify it electronically through authorized bank statements. There’s no faxing, scanning, or uploading and all data is heavily encrypted.
Digital Contract Signing
You won’t need to visit an office, even when it comes time to sign your loan contract. This occurs digitally, which speeds up the process for a quicker funds release.
Fast Funds Release
A good online lender utilizes artificial intelligence to optimize the lending process. This often leads to a decision within minutes of submitting your application.
If you want to move ahead, it is quick and easy. In many cases, applicants receive funds the same or the next business day.
Fee-Free Structure
Some lenders offer a fee-free online loan, which reduces your overall cost of borrowing. Typically, this means that you do not pay an origination fee for setting up an account. You will not pay pre-payment penalties either, since loans are “open”. Pay more at any time, without penalty.
Disadvantages of an Online Loan
Of course, an online loan isn’t for everyone. The following are the most common reasons people choose an in-person loan over an online loan.
No Dedicated Loans Officer
An online loan does not involve a dedicated loans officer. Instead, you deal with a member of the lender’s customer service team.
While a good lender may offer many options such as a toll-free telephone number, website support, email, chat, and a glossary of personal loan terms, you could still potentially deal with a different agent every time you call.
Sensitive Data Online
Submitting your personal data to an online lender could potentially put you at more risk. However, Consumer Affairs states online lenders “must meet the same rigorous criteria as traditional banks to lend money.”
Consequently, if a good online lender takes proper precautions, your data will remain just as safe as if you apply in-person. After all, in-person lenders also store your sensitive data in the cloud.
Nonetheless, the Federal Trade Commission took extra measures to ensure you have safe choices. Lenders must register in the state they operate in and provide proof of their registration on their website.
Potential for Higher Interest Rates
If you have an existing relationship with an in-person lender, you may get lower rates. Some lenders do value loyalty and demonstrate it through their offerings, while other don’t.
May Not Be Exposed to Additional Financial Products
Some online lenders only offer loans. Consequently, they can’t offer you credit cards, a line of credit, or a mortgage. If these are something you’re considering now or in the future, you need to choose a lender that provides many financial products.
What is an In-Person Loan?
An in-person loan is the most known method of lending. It involves visiting a brick-and-mortar office or branch. Examples include borrowing from a bank, credit union, or financial service.
Almost the entire process is managed in-person, but there may be some digital communications such as emails or faxes.
Advantages of an In-Person Loan
As mentioned, an online loan and an in-person are fundamentally the same. However, the methods to obtain a loan and the processes differ. Some people prefer an in-person loan for the following reasons.
Face-to-Face Relationship
Some borrowers prefer to meet a loan officer face-to-face to establish a relationship. The idea of conducting business without knowing who they’re dealing with makes them uncomfortable.
Personalized Service
Borrowers can ask questions and deal with their loan officer directly, instead of going through customer service. The loans officer learns about your finances and your personal situation.
Access to More Products
Dealing with a bank or credit union can often expose the borrower to more credit options. For instance, after obtaining a loan they may be offered a credit card, line of credit, or a mortgage.
Preferred Rates
Working with the same financial institution could potentially lead to more competitive rates too. Banks or credit unions may also waive some fees for loyal customers.
Those with an existing relationship with a lender may enjoy a prioritized application process and potentially higher loan amounts.
Disadvantages of an In-Person Loan
Inconvenient
Applicants must take time out of their day to make an appointment. Then they must travel to the physical branch or office to complete an application form. They may need to revisit the lender to submit necessary documentation too.
Lengthy Application Process
Banks, credit unions, and other traditional lenders still use a long, involved process when you apply for a loan. This often includes filling out a complicated application form which may delve into years of your personal and financial history.
Pre-Approval Isn’t Always Available
Typically, mainstream lenders don’t use the pre-approval process. Instead, you complete your application form, submit the necessary documentation, and wait for their review.
Their review usually includes a “hard” credit inquiry which provides them with all the details on your credit report. However, a hard inquiry also lowers your credit score by as much as 12-points and may stay on your credit file for up to two-years. Too many hard inquiries in a short time could make it look like you’re struggling to obtain credit, even if you’re just shopping around for the best rate.
Strict Credit & Stability Requirements
Traditional lenders place a heavy emphasis on your credit score and your stability. They consider both carefully, because it helps them analyze your risk level.
As a result, many lenders set a minimum credit score requirement. If you don’t meet it, they automatically turn you down for a loan.
The same may apply if you can’t demonstrate long-term work, home, and banking stability. Consequently, if you’ve moved, switched banks, or changed jobs within the past year or two, you may not qualify.
Time-Consuming Income Verification Process
Unfortunately, when applicants apply through traditional lenders they must provide paperwork to verify their income. This may be old pay stubs, a letter from their employer, or an income statement if they’re self-employed.
If they don’t bring this paperwork with them on their initial visit, they must either scan and upload it, fax it to the lender, or revisit them.
Slow Decision
Even after completing a mainstream lender’s application form and submitting proof of income documentation, the applicant will wait. The loans officer must work their way through each application, pull each credit file, confirm income information, and then decide. Regrettably, that often means that approval can take days.
Slow Funds Release
Getting an email from a traditional lender stating you’ve been approved doesn’t necessarily mean you will get the funds straightaway. Often there’s a delay of an undefined length of time.
Can Only Connect With One Person
Working with a loans officer means you can only connect with one person if you have questions or concerns. Others may take a message, but they won’t have access to the details of your loan.
Limited Business Hours
Mainstream lenders still keep limited business hours. Some may have extended them slightly to include Saturdays or even longer hours on some days. However, evenings, Sundays, and holidays are off the table.
Bottomline
An online loan and an in-person loan can both provide funds when you need money. However, they can differ greatly in speed, convenience, and the type of service and perks you may receive.
FlexMoney may be a great solution if you’re looking for an online loan. We offer fast installment loans, even if you have bad credit. Qualifying for a loan is also much easier, when you choose FlexMoney.
We invite you to apply for one of our installment loans online so you can enjoy a positive experience from a seasoned, licensed lender. FlexMoney makes borrowing easy.