So often, when you’re gearing up to apply for a loan or line of credit, the general conversation centers around how you can be a responsible borrower. And rightly so! Being informed about your rights and obligations may help you make better financial decisions.
But what about financial institutions? It’s about time we talk about how responsible lenders may set you up to make informed decisions about your finances.
So how do you find a responsible online loan company? Here are some things you should consider the next time you’re in the market for a loan product, such as a line of credit.
1. Your Personal Information
Online lending needs safeguards, as you’ll have to share important personal details over the web when you apply to get loans online.
Don’t worry — sharing this information is a normal step in the online application process.
A financial institution needs to know about your cash flow needs and current financial abilities to make a funding decision. They may ask to see your banking details and employment history, not to mention your full contact information and Social Security Number.
When done correctly and with trustworthy top online loan companies, sharing this information is generally safe. But if an online lending company skips over essential security protocols, it may expose your finances to the risk of fraud and identity theft.
Before you request an online line of credit or a loan, double check that a financial institution plans to safeguard your information, to ensure that they are responsible and among the best online loan companies.
But you’re probably not a security expert yourself, so how can you ensure an online loan lending company is doing what they should?
Spend some time looking at their privacy policy before you submit your application to borrow money online. This page should make it clear how they intend to collect, use, protect, and share your data.
2. Repayment Structure
Paying off your loan not only involves repaying the principal (the amount you initially borrowed), but also repaying any applicable fees and/or interest.
It’s your right to know what these charges entail before you sign a contract. The Truth in Lending Act (TILA) requires all lenders to disclose certain information depending on the type of loan product they offer. Some examples include the annual percentage rate (APR), full financing charges, payment schedule, and the total repayment amount you will pay[1].
Broadly speaking, your online lending charges may be impacted by the following information:
- Product: One of the four myths about online loans we investigated previously on our blog is that all online loans are the same. But this couldn’t be further from the truth. Online loans vary greatly, and their rates and fees reflect that.
- Location: In some cases, different states allow for different borrowing limits, rates, and terms.
- Credit score: In some instances, a lower score may increase the rates you pay, while a high score may lower them.
- Cash flow: Some online lending companies may check your income, pay schedule, and debt to income ratio to help determine what amount you may qualify for and what rates and terms to set.
Although some fees are a normal part of borrowing, others may not be. Pay special attention to the type of fees an online lending company charges and when. Although good loan companies online strive to make this information clear, transparent and easy to find, it is still important to take your time carefully assessing the fees that come along with your loan and when they ought to be paid.
Timing is everything. If a lender surprises you with an up-front fee you must pay before you receive your funds, you might be dealing with a scam. While some responsible online loan companies may charge you application, appraisal, and underwriting fees, they will disclose these charges early on in the process.
A responsible lender will outline any fees included in their products using clear, easy-to-understand language. This way, you’ll know how much an online line of credit or loan costs before you commit.
If you find it hard to understand what an online lending company is asking of you, don’t sign your loan agreement. You should only agree to a loan or line of credit if you are sure of three things:
- How much it will cost
- This cost is something you can afford
- Your payment due dates are clear
Confirming all these things before you sign a contract can put you in a better position to manage your online line of credit or loan.
3. Transparency
In addition to presenting upfront repayment terms, a responsible online loan company will be transparent about their financial products. They won’t overstate the benefits of an online line of credit or loan, nor will they try to conceal the effects it may have on your finances.
An online lending company should be equally honest about both the potential benefits and things to look out for when using their personal loans or personal line of credit loans.
When it comes to an online line of credit, for example, this product can be a short-term safety net in the event your savings fall short to cover an essential repair or a medical expense. It bridges an unintended gap left by your savings, so you may cover an unexpected emergency expense you can’t ignore.
Generally, a financial institution may have a “how it works” page. Make sure to visit it to understand the intended use of the product. On such pages, you can determine whether the financial product is meant to serve as a financial safety net, an investment to start-up a business, and so on. Note that when you borrow money online, not all financial products available work for every situation where you require funds.
But here’s a quick shortcut: if you’re looking for a way to meet long-term financial goals or make a large, planned purchase, you’ll want to reconsider your source of cash lending online.
Transparency helps you make informed decisions about your finances. You should expect this level of open communication any time you apply for money online.
If an online lending company pressures you to apply for an emergency loan product for splurge items, long-term goals, or recurring expenses, keep browsing. This isn’t a good fit.
4. Reputation
For better or worse, how an online lending company conducts itself will eventually catch up with it.
A common concern for those looking to borrow money may include how to check if a loan company is legitimate, which will have a lot to do with the reputation the company holds with customers who have interacted or worked with them firsthand.
Since we’re living in the 21st century, this catch-up happens at lightning-fast speeds. The same tech that connects us with round-the-minute news and gossip allows borrowers to leave reviews about a service any time and anywhere they have access to the Internet.
These reviews give you a different perspective on an online lending company. It may give you an insight on how this company treats its customers which can quickly inform cautious loan searchers which companies are among the best online loan companies and which should be avoided.
To see how an online lending company checks out, pay a visit to the following review sites:
- Financer.com
- Google Reviews
- Trustpilot
Be digitally literate[2]! Remember that you can’t believe everything you read on the web. But you can compare good reviews with the bad to find a middle ground. It’s here that you’ll likely hit the most balanced look at an online lending service.
5. Simplicity
In this day and age, plenty of people rely on personal loans or personal line of credit loans for whatever reason they may have.
Since it’s a relatively common and sometimes a necessary thing to do, getting started shouldn’t feel like you’re about to climb Mount Everest.
A responsible financial institution won’t punish you for needing help in an emergency, and they won’t engage in abuse or intimidation when speaking with you. Instead, they’ll be helpful and courteous, and they’ll make it easy to request, receive, and manage your loan or line of credit. This care to keep customers at ease and to make the online borrowing process simple is a key value that the best online loan companies should have.
Once you’re done with your loan, repaying it should also be a simple and straightforward process. You shouldn’t have to jump through hoops to pay back what you owe if you get a loan from a top online loan company whose practices are transparent and ethical.
In terms of simplicity, one of the benefits of a line of credit is that generally, you can continue to borrow money without needing to apply for a new loan. This is because a personal line of credit is a revolving financial product. This means paying what you owe simply frees up your line of credit limit, so you may borrow up to this limit any time you have available credit.
Responsible Online Lending is a Must
As normalized as it may have become, applying for a loan is still a big decision that may have an even bigger impact on your finances.
The rates, terms, and conditions you get may vary greatly depending on your lender. To make sure your choice helps rather than hinders your financial health, always apply for a loan from a reputable lender.
When in doubt, refer to this list as a reminder of what a responsible lending company offers: online security, transparency, and simplicity. Ensuring a financial institution has all of these traits will go a long way to helping you find a trustworthy lender when you attempt to get money online.
But keep in mind that this doesn’t mean that loans from companies offering responsible cash lending online are something you may surely be able to afford. Even responsible online lending companies may offer rates, terms, and conditions that may not be suitable for your financial needs, and might still remain unaffordable.
Don’t assume all loans offered by responsible lenders are the right fit for your financial circumstances. Just because a company is among the best online loan companies does not necessarily mean that their products will have the rates and conditions that you prefer and can afford to borrow. Do your research, compare rates, and check in with your budget. When you borrow money online, it is not a simple and brief task that should be underestimated – research is required to confirm a personal loan or line of credit is something you can reasonably afford and want to apply for.
Disclaimer: This article provides general information only and does not constitute financial, legal or other professional advice. For full details, see CreditFresh’s Terms of Use.
[1] https://www.debt.org/credit/your-consumer-rights/truth-lending-act/
[2] https://literacy.ala.org/digital-literacy
Posted in: Online Loans
