Online personal loans have seen a significant boom in recent years, especially since the pandemic kept so many people at home.
When it became difficult to go into a physical bank, many turned to the online option. What was once a novelty is now a staple, and many people wonder if online loans or in-person loans are better.
While neither is better than the other in terms of services, where one might stand out depends on what your specific needs are.
While some might prefer to get a loan without any contact with another human being, others might prefer to have the personal touch that comes from an in-person option.
Here are some points to ponder about each type of loan in the hopes that we can narrow down those options and help you choose the best personal loan for you.
What Are Online Personal Loans?
Online personal loans are exactly what they sound like — financial loans that can be obtained online. The lenders are solely online, with no brick-and-mortar offices to visit.
Everything you need to do to obtain the loan, including signing documents, can be done electronically.
That means you never have to set foot in a bank or other financial institution. You can go through the entire loan process right from your living room sofa.
Here are some other facts about online loans:
- They are occasionally an off-shoot of a larger bank. For instance, PNC Bank launched an online option in 2019.
- The prequalification is usually only a “soft” credit inquiry, which doesn’t affect your credit score.
- They often provide a quick decision, usually within a day or less.
- The fees and rates are transparent from the very start, with no surprises popping up after loan approval.
Are Online Personal Loans Safe?
Online loans are entirely safe, but only if you choose a reputable lender. Legitimate online personal loan lenders are required to meet the same stringent regulatory requirements as brick-and-mortar lending institutions.
A reputable lender will provide a wealth of information about their company that is easy to find online and double-check with a variety of agencies. Here are a few things to look for to ensure the lender is legitimate:
They have a presence on the Better Business Bureau.
They never guarantee a loan. Everyone must go through the process of providing documentation, allowing the lender to check your credit score, and the like.
They are registered in your state. Many online lenders can only operate out of certain states. Check with the Federal Trade Commission to determine if a particular lender is allowed to offer loans in your state of residency.
They never ask for an up-front payment. If you must pay anything at all to initiate a loan process, steer clear.
Even if the lender has no physical branches to visit, they must have a headquarters somewhere. Make sure the address listed for that lender is an actual physical building, not a parking lot.
There should be no pressure. When you seek out a loan from an online lender, you are going to them – they are not chasing you for your business.
Any fees that pop up after the loan approval are a big red flag. Keep in mind that the origination fee charged by some lenders is a legitimate fee, but it should always be communicated to you up-front, so there is no surprise.
Also note that just because a lender makes it clear they cater to those with bad credit or even no credit, that doesn’t mean they aren’t the real deal.
Some reputable lenders make a point of helping those who have terrible credit scores, but all other aspects of their financial life are good.
These lenders will put less weight on the score and more weight on your salary, the longevity of your work history, other points of stability such as living in the same place for a long while, and more.
Are Online Personal Loans Faster?
Prequalification, or finding out whether you are eligible for the loan and what your rates might be, is much faster with an online bank.
This can happen within minutes and can give you a good idea of what to expect if you choose to move forward.
These loans might also be faster in that you can upload all information electronically.
It’s entirely possible that you could go from prequalification to the loan being funded within the same business day.
Are Online Personal Loans Better for People With Bad Credit?
In some cases, there are online lenders who specifically cater to those with bad credit, which is great.
But while there are some online lenders that make it clear that those with poor to fair credit are eligible, remember that the process is entirely online, which gives you no opportunity to really explain your situation and what led to that poor credit score.
An in-person loan allows you to sit in front of a bank representative and explain the situation. That can often be enough for a banker to choose to take a chance on you.
What’s the Difference Between Online and In-Person Loans?
Why would you choose to get your much-needed funds online instead of at an in-person institution? There are many reasons why someone might choose the virtual path.
How an Online Loan Works
Applying for a personal loan online is easy.
Get Prequalified
It starts with the prequalification step, where you enter some very basic information, such as your annual or monthly salary, your social security number, your address, and other basics.
On the strength of this information, the lender will let you know if you can proceed with an application. This process takes only a few minutes.
Collect Your Documents
Once you are preapproved for the loan, that’s when the documentation requirements begin.
Your lender will ask for you to verify the information you provided during that prequalification process.
You can do this by creating an account with the lender and then uploading the information they request, such as proof of income, official identification, and the like.
Each lender might request different items, but they should all be relatively easy for you to obtain.
The Lender Reviews Your Application
The lender will take some time to review the documentation. If they have additional questions, they will communicate that to you.
The review might take as little as one business day.
Get Approved
If you are approved, you will receive an electronic letter with the pertinent information, such as how much you were approved for, any fees that might apply, the interest rates and other terms, and what your next steps should be.
If all looks good, you can sign for the loan online.
Get Funded
Once the electronic disclosures and signing are complete, your money is yours.
It will usually be deposited into your bank account within a few business days (depending upon your bank’s policies) or sent directly to your creditors if you chose that option for a debt consolidation loan.
There is often a 30-day grace period before you begin making monthly payments on the personal loan.
Just as with the online application and process, your payments on the loan will be handled entirely online.
How an In-Person Loan Works
When getting an in-person loan, you might be able to handle some of the initial aspects online, such as prequalification or setting up an appointment with a bank representative.
Apply for Loan
Then the process moves to the application.
Some banks allow you to complete this online, but many require you to print out the forms and bring them to the bank with you when you arrive for your appointment.
Supply Supporting Documentation
You will be asked to bring supporting documentation as well, such as pay stubs and other financial information. If you already have accounts at this bank, the process gets easier, as the bank already has access to your statements.
You will provide the same information to the bank as you do your online lender.
Ask Questions and Talk to a Lender
When you speak with the bank representative, you might have options available to you that you won’t find at an online bank.
For example, you can take your time to explain any questionable points of your credit score or credit report. You might also be offered a variety of options for loans that better fit your unique financial situation.
Wait for Approval and Funding
Since a person is going through your documents one at a time, it might take longer for approval from an in-person lender.
As a result, it might take longer to receive your money.
If you already have an account at the bank, you might get the funds within a day or so after approval; if you don’t have an account with them and they must send the funds to another bank, it might take a few more days.
Most banks allow you to make your loan payments online.
Though you can likely manage your account online from that point, you do have the peace of mind that if something goes wrong, you can walk into the bank and speak with someone directly about your loan.
Pros and Cons of Online vs. In-Person Personal Loans
Still not sure which option is right for you? Here are some pros and cons to consider for online loans.
Pros and Cons of Online Loans
What about in-person loans? There are advantages and disadvantages to those as well.
Pros and Cons of In-Person Loans
Which Is Better for You?
Finally, understanding which loan option is best for you depends on… well, you.
Your financial life and what suits your lifestyle are vitally important to ensure your comfort with handling your finances.
An Online Loan Is Better For:
Those who have incredibly busy schedules
If you’re having trouble simply making time to go to the grocery store, sitting in a loan officer’s cubicle is probably not going to fit into your day.
Those who are unable to get to a bank
If you have mobility issues or a lack of transportation, getting to the bank can be a real chore. Getting that loan online can lead to a sigh of relief.
Those who have bad, poor, or fair credit
There are many online lenders that cater specifically to those who have lower credit scores.
Those who are comfortable with handling their banking online
If you don’t mind banking entirely online and never even speaking to another human being, an online loan is just right for you.
Those who are savvy with technology
Getting an online loan means you need to be quite comfortable with online and mobile technology that allows you to not only get the loan but pay it back in monthly installments.
An In-Person Loan Is Better For:
Those who prefer a personal touch
If you want the security that comes from a professional relationship with a banker, meeting with them in person is a good way to establish that.
Those who have something to explain about their credit history
Sometimes things happen that tanks a credit history, such as a medical bankruptcy.
Explaining this in person can result in approval rather than rejection.
Those who want other financial products
If you are planning to create a new financial life with a new bank, you could apply for a loan and set up other accounts at the same time.
Those who need to leverage their strong community ties
Are you very active in the community? Getting the loan in person can provide you with more connections and give business to your local bank.
Those who are uncomfortable with banking online
If you aren’t very tech savvy or simply have concerns about banking online, getting a loan in person is the best idea for you.
Frequently Asked Questions
What are you not allowed to use a personal loan for?
You can use a personal loan for many things, but there are some exceptions. Personal loans are not to be used for post-secondary education or the down payment on a home. Lenders also prohibit gambling or illegal activities with the loan proceeds.
How can you see your credit report?
If you are denied a loan based on your credit or something specific in your credit report, check the report yourself to see why. It’s also a good idea to check your credit before you apply for a loan so you can avoid any nasty surprises. To check your credit report, go to AnnualCreditReport.com.
Should you opt for a co-signer or joint loan?
That depends. Some personal loan lenders will allow joint loans or a co-signer. The ones that do will often allow you to include someone else on the loan in an effort to bolster your income or credit. Keep in mind that if you do include someone else on the loan, they are equally responsible for paying it back, and some might not want that responsibility.
Is a secured loan better than an unsecured loan?
Not necessarily. A secured loan is one that uses some sort of collateral, like your vehicle or your home, to guarantee that the loan will be paid back. An unsecured loan is one given to you based on your credit history, credit score, and the like, with no collateral required. One is not necessarily better than the other, though some prefer unsecured loans because they don’t want to put their residence at risk if they default.
What if I need more money than the lender is offering?
Personal loans are typically for less than $100,000. If you need more than that, it’s a good idea to visit your financial institution and talk with a banker about the options available to you.
