In today’s digital age, the lending landscape has undergone a significant transformation with the rise of online loans. Now, certain digital platforms do the lending activity and offer borrowers an option to get a certain loan amount at a much faster rate.
The main advantage of these digital platforms is that they offer borrowers convenience and speed, which can be accessed at a variety of places. However, as with a variety of financial products, online loans have certain drawbacks, which makes them a trap for customers.
In this blog, we will delve into the pros and cons of online loans, look at their potential costs, and check whether they are a good bargain or not.
Pros of Online Loans
There are certain benefits of online loans through which a customer can benefit that were previously not there. Here are some of the advantages of online loans and how they can help a person to meet their financial requirement.
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Convenience
One of the most significant advantages of online loans is that they are convenient and easy to get. Online loans allow borrowers to apply for the loan amount and help a person easily check whether or not they are eligible for that loan amount.
Previously, one needed to go through the process of asking a bank’s personnel and visiting several times, and then they could ensure whether or not one was eligible for the required loan amount. Here, mobile software works as a loan agent and can show the parameters for which the loan gets rejected.
If the loan is approved, then the system itself generates how much a person can receive the loan and, based on that, decides about the loan terms.
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Accessibility
Online loans are easily accessible and thus bring the credit options to the variety of customers who can state that they are being catered, which was not possible under the traditional loan.
There are a variety of online lenders that consider multiple factors apart from credit score to register a customer and provide them a loan on time by evaluating the history and background of that person. It looks at things such as employment history, income, and credit history, which determine whether or not the person can get the loan.
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Speed of Approval and Funding
Suppose the online process is compared with the traditional banking and lending process. In that case, it can be clearly observed that in the online process, the speed of loan approval is exceptionally fast, and it allows a person to use that lending approach in times of emergency.
The process of same-day approval and navigating through the bureaucratic channels are some of the reasons that were never possible in the traditional lending platform. Here, it can be solved with software and an algorithm.
Cons of Online Loans
On the one hand, we have witnessed the positive aspects of online loans; however, certain underwhelming aspects can’t be ignored.
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Higher Interest Rates and Fees
The interest rate for an unsecured loan in an online portal is exorbitantly higher. It comes with some extra processing fees, which are especially high if a person is borrowing through the online portal.
For example, if you are looking for major loans like a home loan or business loan, then a home loan agent can provide a person with better rates than any online portal that claims to provide home and business loans.
Since the risk attached to the online loan is higher, it’s expected that the interest rate of those loans will be significant.
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Potential for Predatory Lending Practices
Banks generally tend to avoid giving loans to people who don’t have a strong background and often fail to pay on time. However, in the online platform, certain companies are willing to make a person fall into the debt trap and then harass the individual by selling and sharing their private credentials.
Thus, it shows that the online portals are not immune to these practices, which a traditional bank always avoid and doesn’t provide people with excessive loan terms, which will make the person fall into a debt trap.
Thus, online loans sometimes act as a Trojan horse that can harm the individual in the name of helping them in their time of need. Hence, a person needs to carefully judge, analyze, and check the reputation of the lender before opting for an online loan.
