A Brave New Online World of Lending – The Very Latest Types of Online Loans to Apply For
Gaining access to finance has never been easier, thanks to the internet and the opening up of the loans marketplace. Navigating the online loans marketplace, as a consumer, is not easy and finding the right type of loans online for your individual circumstances can be tricky.
If you need access to cash, it is likely that you will be able to find someone willing to lend you money online. And with greater regulation of the loans industry, through the Financial Conduct Authority (FCA), borrowing online is also safer than ever, providing you ensure you only borrow with lenders registered and authorised by the FCA.
Look beyond bank loans
As consumers, we no longer need to rely on our bank account provider or our building societies to provide us with finance when we need it. A couple of decades ago, anyone looking for a loan would have had very little choice but to apply for a personal loan through their bank and agree to terms and interest charges set by that bank.
A few seismic changes to the personal finance marketplace have made a massive difference to the amount of choice we now have when borrowing. Firstly, the internet makes it easier for financial providers to reach consumers and makes their products more accessible. Secondly, the economic crisis in 2007/8 led to a change in attitudes to the big high street banks we had all trusted for so many years. We no longer feel we should rely on them without question, and this has led to Open Banking and a fairer marketplace.
These changes also drove interest rates down and increased the flexibility offered by providers of loans online. As a result, most of us can pick and choose from a whole range of online loans and finance options to find one that is perfect for us, in terms of loan value, repayments terms and cost.
New types of online loans you may not have yet considered
Online peer-to-peer loans
Ever considered avoiding banks and financial institutions altogether when seeking a loan online or otherwise? Perhaps a peer-to-peer lending platform is the right option for you.
What are peer-to-peer loans?
This type of online lending, also known as social lending, is usually facilitated by a peer-to-peer lending platform. These online platforms match loan applicants with individuals or institutional lenders who are willing to offer them some, or all of the cash they need. Sometimes loans are fulfilled by a number of lenders and other times one individual may offer the entire loan for a borrower.
Lenders are able to learn about borrowers and opt in or out of loan deals according to information such as the borrower’s credit history and ability to repay the loan, as well as their past performance when taking on credit. This also means that, as an online borrower, using a peer- to peer lending platform usually comes with some form of a thorough credit check and affordability test.
Who might want to apply for a peer to peer loan online?
If you have a very healthy credit score and have had no history of debt problems, you may be able to secure a better interest rate on a loan with a peer-to-peer online platform than with a bank loan. You may also be able to find more flexible terms and could even have more choice over the amount you borrow than with a traditional personal loan offered through a bank or an online provider.
What are the drawbacks of this type of online loan?
Peer to peer lending platforms often charge arrangement fees to cover the costs of matching borrowers with lenders, so check these closely before agreeing to sign up. Check if you will be charged a fee each time you apply, or whether any fees are only payable once, as this may also impact your decision.
Those with poor credit ratings may struggle to secure a decent interest rate through peer-to-peer lending, so this might be the best option for you if you fall into this category. Terms and conditions of borrowing in this way can also vary tremendously from regular borrowing through a bank or online lender, so make sure you are happy with how the loan and repayments will work before applying.
Online instalment loans
What are instalment loans?
A few years back, if you wanted to get your hands on cash quickly, your only alternative to increasing your overdraft would be to borrow from a payday loans company. Traditional payday loan lenders offered low-value loans with few background checks on borrowers. They would request that the money was repaid on the borrower’s next payday, with little or no flexibility on this. Many people struggled to meet these terms and were forced to extend their loans with their payday lenders or take another online loan or payday loan to repay their initial payday loan, thus accumulating unmanageable levels of very expensive debt.
The Financial Conduct Authority (FCA) came down hard on the payday loans industry following huge numbers of customer complaints. The result is the opening up of the short-term loans industry and one of the most attractive types of short-term finance to emerge is the instalment loan.
How is an instalment loan different from a payday loan?
An instalment loan is a short-term loan of a relatively low value that is intended to be repaid over a series of monthly instalments. You can often get an instalment loan without having to meet as rigorous credit checks as when taking out personal loans through a bank.
Payday loans would traditionally require the full value of the loan, plus interest, to be repaid immediately after the borrower’s next payday. Instead, instalment loan repayments are spread over a greater period of time, having less impact on consumers’ finances and increasing their ability to afford to meet their repayment responsibilities.
Who might want to apply for an instalment loan online?
One of the best things about instalment loans is, just like with traditional payday loans, you can see the money in your bank account on the same day as you apply, providing you meet all the lending criteria. Therefore, they are popular among those who need access to quick money to meet a financial emergency. Here are some examples of the kinds of things people use instalment loans for:
- Paying for car repairs
- Emergency repairs to household appliances
- School fees
- Dental/medical treatment
- Other unexpected costs
What are the drawbacks of this type of loan?
Instalment loans, like most short-term finance solutions, come with relatively high-interest rates, due to their high-risk nature. Lenders should undertake thorough affordability checks before approving an application, but, as a borrower, you should be confident that you can meet your instalment payments in order to avoid creating further financial problems and building up greater penalty and interest rate charges.
Online lines of credit loans
What are lines of credit loans?
There is a new group of online lenders who specialise in offering lines of credit to borrowers. These work a little like a traditional bank overdraft. The lender agrees to a maximum loan amount and makes this available to the borrower who can choose to draw down money up to that limit. However, interest and charges only apply to the amount the borrower actually spends, not on the total amount available.
How does a line of credit loan work?
You can apply for a personal line of credit with some online lenders in a similar way to applying for an online loan. Once you have provided personal details and information about your employment status and income, your creditworthiness will be assessed and a decision will be made.
Usually, once your line of credit limit has been agreed, you can withdraw money by contacting the lender who will quickly transfer the cash into your bank account. You then pay that money back, along with interest on the amount withdrawn, over a pre-agreed period of time.
Who might want to take out a line of credit loan?
If you feel that you would like access to credit when you need it, but don’t want to commit to a large personal loan and the repayments and interest that come with that, then a line of credit might be the right option for you. This type of loan is commonplace for small businesses who want more flexibility over their spending but need to keep their repayments low.
What are the drawbacks with this type of loan?
Lines of credit providers can sometimes change interest rates and terms, so check the small print carefully. They may also apply fees to your loan and interest-only repayments are often possible, which mean higher interest charges overall. If you need to borrow a large amount of money for a specific item, a line of credit might not be the best option for you.
Online bad credit loans/guarantor loans
What is a guarantor loan?
If you need to borrow money, but your credit record leaves a lot to be desired, you might still be able to secure a loan if you can find a loved one who will act as a guarantor for you. A guarantor is a person close to the borrower who agrees to repay a debt on behalf of a borrower if they are unable. The guarantor is credit-checked, along with the main applicant. However, providing the guarantor has a good credit record and/or a steady income, it will often be possible to access a guarantor loan.
Who might want to take out a guarantor loan?
Anyone who needs access to credit, but has a poor credit history, could benefit from a guarantor loan online. Loans can be very difficult to come by if you have struggled with debt in the past, or if you do not have a steady income, for example. A guarantor loan can help you obtain credit, which could also help to improve your credit score, providing you personally make the repayments onto your guarantor loan account.
What are the drawbacks of this type of loan?
Guarantor loans are rarely very flexible and will often come with relatively high-interest rates. Penalty charges and arrangement fees might also be payable, so check these terms carefully before applying. Guarantor loans also carry the drawback of needing to persuade a family member or close friend to act as guarantor. If you do struggle to make repayments, your guarantor will be legally obliged to make the repayments on your behalf, so this is not an arrangement to enter into lightly.
As you can see, there is a whole new world of online finance out there for anyone willing to approach the market with an open mind. To get the best deal and the right kind of loan for your needs, it’s best to put some legwork into researching these options with your own circumstances in mind. Good luck exploring!
Warning: Late repayments can cause you serious money problems. For help, go to moneyadviceservice.org.uk
Representative Example: Borrow £400 for 4 months, four monthly repayments of £197.48. Total repayment £597.48, interest rate p.a. (fixed) 255.5%. Representative APR 939.5%. Compare Moneyboat loans.
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