4 times applying for a loan online makes sense

Online lending is expected to grow from $408.7 billion in 2023 to over $700 billion by 2028, according to a recent industry report on the digital lending market⁽¹⁾. The growth in online lending is fueled by major benefits that online lenders offer borrowers, such as an optimized loan process, a way to compare multiple loans at once, quicker decision making and near seamless applications.

Traditional lenders have their perks, but if you’re in a time crunch, want to compare multiple offers at once or can’t qualify with a traditional bank, getting a loan online may be the right option for you. Here are four times when applying for a loan online makes sense.

1. You need fast access to cash

Online lenders leverage digital technology to automate and simplify various aspects of the loan application process. You get to ditch the face-to-face, in-office application process in exchange for a five-minute online application. By comparison, banks and credit unions can take days or even weeks to process your application.

And because many online lenders use algorithms to underwrite loans, they can often process your request in minutes and send funds as soon as the same business day.

2. You want to compare multiple options at once

Many online lenders are marketplaces that partner with top lenders to let you compare multiple loans at once. You fill out one application that includes your personal details, and you’re matched with multiple lending offers that meet your needs and credit profile. If you’re on the hunt for the best deal, applying online offers a way to compare rates, terms and fees more quickly and easily.

3. You want to prequalify

Loan prequalification helps you get a clear picture of your loan eligibility before fully applying for a loan. You save time and effort by finding out if you meet a lender’s initial loan requirements before going through the full application process. You also protect your credit score by avoiding hard credit pulls for loans you won’t be approved for.

Online lenders typically offer a way to prequalify by using a streamlined process that involves a soft credit inquiry. You fill out basic personal information, such as your name, income and desired loan amount, to help the lender assess your eligibility. Then, the lender does a soft credit pull to get an overview of your credit history.

Based on this information, the online lender can determine your basic eligibility for a loan. If you meet the criteria, you’re typically provided with a prequalification offer that includes the loan amount you may qualify for, potential interest rate and terms of the loan. Prequalification offers are initial estimates and are subject to further verification during the formal loan application.

You can use prequalification offers from multiple lenders to compare loan options before deciding on the best fit for your financial needs.

4. You have a low credit score or no credit history

If your credit history prevents you from qualifying for a loan with traditional lenders, you may have more luck with online lenders — some accepting credit scores as low as 300. Many online lenders cater to individuals with bad credit and consider factors beyond your credit score when evaluating your loan application, such as income or utility payment history.

With online lenders, you’ll typically have access to a variety of loan products that may work for your circumstances, such as peer-funded loans or installment loans. If you use a lending marketplace or get prequalified, you can compare multiple lending offers whose criteria you meet without doing all the leg work.

As with any loan, use caution when comparing online loans for bad credit by doing your research, comparing lenders and reading reviews. Keep an eye out for common loan scams or predatory loan terms, such as extremely high interest rates or hidden fees. Review any loan terms before committing to an online loan.

Bottom line

Applying online for a loan makes sense if you need money fast, have bad credit or want to compare multiple options. However, it’s important to note that the speed and convenience of an online loan may come at the cost of higher APRs compared to in-person lenders.

When shopping for loans online, always carefully review the terms and conditions of your loan offer, including interest rates, repayment terms and any potential fees, before finalizing your application.

About the Author

Megan B. Shepherd is a personal finance editor at Finder committed to helping Americans navigate the financial world of loans and insurance. Megan’s expertise has graced the pages of Forbes, Fox, Time, Reviews.com, and carinsurance.com, adding invaluable information related to loans and insurance. Megan’s adept knowledge of financial topics has also led to contributions to reputable publications like Nasdaq and MediaFeed, where she intricately dissects and explains personal loans, financial strategies and smart borrowing tactics.

This article originally appeared on Finder.com and was syndicated by MediaFeed.org.