Yes, online loans do really work as long as they’re from a reputable lender. Online lenders such as LightStream, Discover and SoFi legitimately lend people money that must be repaid over time, just like a loan you’d get from a credit union or bank branch, and online loans are often cheaper.
On the other hand, some online loans are just expensive scams, which is why it’s important to choose the right loan from a reputable lender. An example of an online loan to avoid is a payday loan. Payday loans require repayment very quickly and often have fees equivalent to an APR of 400%+. Generally, you should not pay finance charges in excess of 36% on a personal loan.
How Online Loans Work
You apply for the loan and the lender reviews the application. When you apply for an online loan, the provider will request some personal and financial information through an online application, such as your name, date of birth, employment status and income.
The lender will send you a lump sum of money if you’re approved. Online lenders will generally send you the funds via a bank transfer within a few business days after approving your application.
You repay the money, plus interest. Once you get the loan, you’ll have to start paying it back, along with interest. These payments are due at regular intervals – typically monthly.
The lender will report information to credit bureaus. If you make on-time payments, the lender will report positive information to credit bureaus, which will improve your credit score. If you don’t repay the loan or pay late, you will suffer credit score damage.
The account will be closed once you fully repay the loan. The lender won’t need anything else from you once they close the account the loan was tied to.
The best online loans have low minimum APRs, long repayment periods and large loan amounts. You can see a comparison of the best online loans from popular lenders below.
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