Characteristics of a Responsible Online Lending Company

Published on June 5, 2020 by Daniel Azzoli

woman pointing to her right at a blank wall while holding a book open in her left hand

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 lending 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.

Your Personal Information

Online lending needs safeguards, as you’ll have to share important personal details over the web when you apply for a loan or line of credit.

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.

pixilated image of security and mouse icon

When done correctly, 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 loan, double check that a financial institution plans to safeguard your information.

But you’re probably not a security expert yourself, so how can you ensure an online lending company is doing what they should?

Spend some time looking at their privacy policy. This page should make it clear how they intend to collect, use, protect, and share your data online.

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 fees 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.

Timing is everything. If a lender surprises you with an up-front fee you must pay before you receive your funds, the Federal Trade Commission warns you’re likely dealing with a scam.[2]

While some responsible online lending 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 two things:

  1. How much it will cost
  2. This cost is something you can afford

Confirming both of these things before you sign a contract can put you in a better position to manage your online line of credit or loan.

Transparency

In addition to presenting upfront repayment terms, a responsible online lending 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.

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.

Reputation

For better or worse, how an online lending company conducts itself will eventually catch up with it.

white phone resting on white texturized surface next to red comment and like bubbles

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.

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![3] 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.

Simplicity

In this day and age, plenty of people rely on personal loans or personal line of credit loans for different circumstances.

Since it’s a relatively common and sometimes a necessary thing to do, getting started shouldn’t seem 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.

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.

In terms of simplicity, one of the benefits of a line of credit is that you won’t have to close out your account like you would for some personal loans.

Closing an account simply means you’ve repaid everything that you owe, so you have no more payments to make.

With some personal loans, this also means you won’t have access to any more funds.

But a personal line of credit is a revolving financial product.[4] 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.

woman smiling next to open white laptop while sitting in black chair in white room next to window

Responsible Online Lending is a Must

Normalized though it may be, 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.

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.  

Don’t assume all loans offered by responsible lenders are the right fit for your financial circumstances. Do your research, compare rates, and check in with your budget. This is the only way to confirm a personal loan or line of credit is something you can reasonably afford.

Still have questions? Get in touch with our Customer Service team to ask them — we’re here to help any way we can.

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://www.consumer.ftc.gov/articles/0078-advance-fee-loans

[3] https://literacy.ala.org/digital-literacy/

[4] https://www.businessinsider.com/personal-finance/what-is-revolving-credit-its-credit-cards-lines-of-credit