Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.
If you’re considering taking out a loan, you might be wondering whether it’s better to go with an online lender or ab in-person loan at a traditional brick-and-mortar bank.
There are Pros and Cons to both options, and the answer ultimately depends on your unique financial situation.
In this blog post, we’ll explore the advantages and disadvantages of online and in-person loans so that you can make the best decision for your needs. Let’s get started!
Online vs. Bank Loans: The Differences that Matter
When you’re trying to decide whether to take out an online loan or go to a traditional bank, there are a few key differences that you’ll want to keep in mind.
For one, online loans tend to be more convenient than bank loans. With an online loan, you’re able to apply from the comfort of your home. And you’ll usually receive a decision within minutes. Contrast that with the traditional bank loan process, which can be time-consuming and involves a lot of paperwork.
Another key difference is that online loans typically have lower interest rates than bank loans. This is because online lenders don’t have the same overhead costs as traditional banks, so they can pass those savings on to you in the form of lower interest rates.
Finally, online loans tend to have shorter repayment terms than bank loans. This means that you’ll have to pay off your loan more quickly, but it also means that you’ll pay less in interest over the life of the loan.
>> More: Best Personal Loans
Understanding Online Loans
Before you decide whether an online loan is right for you, it’s crucial to understand how they work.
Online loans are unsecured loans lent to consumers through an online marketplace. This means that you don’t need to put up any collateral (like your home or car) to secure the loan.
Online loans come in various shapes and sizes, but they all share one key feature: they’re designed to be repaid quickly. Most online loans have repayment terms of just a few months or a year, much shorter than the typical loan term at a traditional bank.
However, because online loans are designed for quick repayment, the total cost of the loan (including interest and fees) will usually be much lower than if you took out a loan from a traditional bank.
>> More: How to Apply for a Personal Loan
Understanding Bank Loans
If you’re thinking about taking out a loan from your local bank, there are a few things you should know.
First, bank loans are typically secured loans. This means that you’ll need to put up some form of collateral (like your home or car) to secure the loan.
Second, bank loans tend to have higher interest rates than online loans. This is because the bank has to cover its overhead costs, including rent, utilities, and employee salaries.
Third, bank loans typically have longer repayment terms than online loans. This means that you’ll have to pay off your loan over a longer period, and you’ll end up paying more in interest.
Finally, bank loans are not as convenient as online loans. You’ll usually need to go into the bank branch to apply for a loan, and the approval process can take weeks or even months.
>> More: Requirements to Get a Personal Loan
Pros and Cons of Online Lender Loans
Different types of loans will be a better fit for different people, so it’s essential to weigh the pros and cons of each type before you make a decision.
Here are some of the key pros and cons of online loans.
- More convenient than bank loans
- Lower interest rates
- Shorter repayment terms
- May not be available in all states
- Not as well known or established as banks
Pros and Cons of Traditional Bank Loans
Now that we’ve looked at online loans, let’s look at the pros and cons of bank loans.
- Well known and established
- Can offer a variety of loan products
- More repayment options
- Less convenient than online loans
- Higher interest rates
- Longer repayment terms
Online vs. Bank Loans: How to Compare
There are a few key things to keep in mind when you’re deciding whether an online loan or a bank loan is the best option for you.
The first thing to compare is the Annual Percentage Rate (APR). This is the interest rate plus any fees charged for the loan.
As we mentioned before, online loans tend to have lower APRs than bank loans. So, if you’re looking for a loan with the lowest possible interest rate, an online loan is probably your best bet.
The second thing to compare is fees. Some online lenders charge origination fees, typically around 1-5% of the loan amount.
Bank loans also have fees, but these are typically much higher than the fees charged by online lenders. For example, banks may charge application fees, origination fees, and closing costs.
Next, you’ll want to consider how long it will take for the loan to be funded. Online loans are typically funded much faster than bank loans.
This is because online lenders don’t have the same overhead costs as banks, so they can quickly process your loan application.
>> More: Best Quick Personal Loans
Then you’ll want to look at the qualifying criteria for each type of loan. For example, online loans typically have less strict qualifying criteria than bank loans.
This is because online lenders are willing to take on more risk by lending to borrowers who may not meet the strict standards of traditional banks. So, if you’re not sure if you’ll qualify for a bank loan, an online loan may be a good option.
Another important thing to compare is the repayment term. This is the amount of time you have to repay the loan.
As we mentioned before, online loans tend to have shorter repayment terms than bank loans. If you’re looking for a loan that you can pay off quickly, an online loan is probably your best bet.
Are Loans from Online Lenders Safe?
Now that you know a little bit more about the pros and cons of online loans, you might be wondering if they’re safe.
The answer is yes! Online loans are just as safe as loans from traditional banks.
This is because online lenders are subject to the same regulations as traditional banks. Rest assured, your personal information and financial data are safe and secure.
Is It Faster to Get a Loan Online or from a Bank?
As we mentioned before, online loans are typically funded much faster than bank loans.
This is because online lenders process your loan application more quickly. Online loans are typically funded in as little as 1-3 days.
On the other hand, bank loans can take weeks or months to be approved and funded.
Will I get better customer service through an online lender or at a bank?
When it comes to customer service, there is no clear winner. Both online lenders and traditional banks offer high-quality customer service.
However, one thing to keep in mind is that traditional banks will have local branches to provide customer service in person.
If you need help with your loan, you can always reach out to the customer service team at your online lender. But if you prefer to talk to someone in person, a traditional bank may be a better option for you.
Do Online Lenders or Banks Offer Better Personal Loan Rates?
Online lenders typically offer lower APRs than traditional banks when it comes to personal loan rates.
A lower interest rate means you’ll save money on your loan. So, if you’re looking for a loan with the lowest possible interest rate, an online loan is probably your best bet.
Is It Easier to Qualify for a Personal Loan Online or at a Bank?
As we mentioned before, online loans typically have less strict qualifying criteria than bank loans.
This is because online lenders are willing to take on more risk by lending to borrowers who may not meet the strict standards of traditional banks. If you’re not sure if you’ll qualify for a bank loan, an online loan may be the way to go.
Bottom Line: Online vs. In-Person Loans
When it comes to taking out a loan, there are a couple of different options to choose from. You can go with an online loan or an in-person loan. But which one is the best option for you?
Online loans are typically processed more quickly than bank loans, have shorter repayment terms, and offer lower interest rates. However, traditional banks may offer better customer service and longer repayment terms.
Ultimately, the best option for you will depend on your individual needs!