How to choose an online loan
Online loans are becoming increasingly popular because they are typically quick and easy to obtain. The most popular online loan is an unsecured personal loan as the process can be completed entirely online. An unsecured personal loan is not secured against your property and is typically taken out between one and five years. If you are looking for a loan online, Freedom Finance can provide you with quotations from different lenders tailored to your individual needs, without impacting your credit score. For more information visit: https://www.freedomfinance.co.uk/the-freedom-way/
What sort of online loan do you need?
There are two main factors to take into consideration when deciding which loan is right for you. When purchasing a loan, you need to consider how much you are looking to borrow and how long you want to borrow the loan for.
If you need to borrow money to cover the cost of a product, for example: a car, then you want to make sure the loan covers this cost. However, you also need to ensure that you are not borrowing more than you need or more than you can afford.
It’s also important to consider how long you want the loan for. A longer term loan may mean reduced monthly payments, however, it could also mean higher interest payments, which increases the total amount borrowed in the long run.
How to get the best online loan
The benefit of looking for a loan online is that it is often easier to search around and compare different deals. By comparing, you can be sure you’re getting the best deal for you. If you use a broker like Freedom Finance, you can get tailored quotes based on your individual circumstances online, without harming your credit rating.
How to compare online loans
To compare loans from different lenders, there’s a few things you should look out for.
- The representative APR – this stands for Annual Percentage Rate and refers to the amount of interest you will be charged on your borrowing. A lower APR means that you will pay back less interest on your borrowing.
- The monthly payment – when comparing loans you should also pay attention to the monthly repayments. The APR might be low, however, this does not mean that the monthly repayments will be affordable.
- The total cost of the loan – you should also make sure you check how much the loan will cost in total, including any interest you will pay.
Benefits of online loans
There are several benefits of searching for loans online. Here are our top benefits:
1. Lower interest rates
Lenders who are based solely online promise to offer reduced interest rates on their loans. This, they say, enables them to offer the consumer better interest due to the money they save from reduced overheads. It must be said however, that some high street banks use this method in selling their own online loans, which usually have an equally low interest rate.
2. You can keep an eye on the balance
An advantage of an online loan is that it is easily accessible. The current balance can be easily checked and any changes to your details can be updated quickly and efficiently rather than having to visit a high street branch.
3. Competitive pricing
Due to the growing market for credit during the recession, more and more online lenders are appearing. This is great news for the consumer as these lenders must be competitive in their pricing to make them more appealing than their contemporaries.
4. Easily comparable
Many online comparison sites present tables displaying the most attractive rates from each lender. However, these rates are usually reserved for those with the best credit rating. In fact, lenders only have to sell their most attractive rates to 51% of their customers, which means that 49% will be rejected, and incur a detrimental mark on their credit file.
The solution to this is to use ‘soft search’ tools offered by Freedom Finance, which don’t leave an impact on your credit file. This allows potential borrowers to seek the most suitable loan based on their individual circumstances, giving an actual quote rather than an impersonal rate table. The aim of this is to reduce rejections, which are harmful to your credit file as no footprint is left until a formal application is made.
Your personal details can be inputted privately rather than having to discuss your circumstances in front of a room full of strangers at the bank. Also you may not feel comfortable divulging your personal circumstances to a bank manager, whereas the ‘faceless’ online lender takes away this problem.
Disadvantages of online loans
Whilst there are several benefits for online loans, you should also make sure you are aware of the disadvantages before you make the purchase.
1. Difficulty in understanding online terms and conditions.
Some customers value the explanation that a face-to-face loan consultation can provide and feel more confident in what is expected of them in terms of repayment and changes in circumstances. Some people prefer to ask specific questions which may not be available online.
2. Online doesn’t give the opportunity to explain complicated finances.
Individuals who have complicated financial portfolios may feel more confident discussing these matters to a financial advisor or bank manager rather than trying to fit within the parameters laid out by online application forms.
3. Online advertised rates may be misleading
Online lenders will advertise their best possible interest rates to attract custom. However, only 51% of successful applicants need qualify so 49% may be charged higher than they originally thought, and so would need to search again. A face-to-face lender would give you the specific rate based on your circumstances so you wouldn’t feel you were missing out on a better deal.
4. Preferential rates may be offered from your existing bank
If you have been with the same bank for some time, it may be worth checking if you would qualify for preferential loan rates through being a loyal customer.