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Can I Get a Personal Loan Online?

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Some of the newest, most innovative personal loan lenders are online. They join big names in the personal loan business, like Discover and Goldman Sachs. Here, we'll discuss how online personal loans work, the pros and cons of online loans, some of the best online lenders, and alternatives to online personal loans.

How do online personal loans work?

An online lender streamlines the process of getting a loan. The time it takes from application to funding is typically a matter of days (even faster with some lenders). And you can complete the entire process from the comfort of your living room. If you're looking for an unsecured loan (one that doesn't have collateral a lender can take if you don't pay), an online lender offers a fairly easy process.

Here's how it works:

  • You fill out an online loan application. Include basic information like your name, Social Security number, employment status, and income. (If you're unemployed, take a look at our guide to getting a loan while unemployed for more information on what to list as income.)
  • The lender may ask what you plan to do with the loan. For example, the lender wants to know if you need the funds to remodel your home, for debt consolidation, or to pay off high-interest obligations like a title loan or credit card debt.
  • The lender checks your credit history. It will run a "soft" credit check that has no impact on your credit score.
  • The lender either approves or denies your application based on the credit check. If it's denied, the lender is required to let you know why.
  • Once you're approved, the lender gives you a loan offer. It includes interest rate, loan term options, and any add-on charges, like an origination fee or prepayment penalty.
  • You should compare several loan offers. Then you can let a lender know when you're ready to proceed.
  • The lender will do a "hard" credit pull when you give the go-ahead. This will verify that your financial information is still accurate. The hard credit check will lower your credit score slightly, but your score will rebound with regular monthly payments.
  • The lender may ask for additional documentation. For example, it may ask for photo ID, income verification, or tax records. You can simplify the process by having documents (like pay stubs and tax returns) ready when you apply.
  • You sign a contract and wait for funding. Loan proceeds are deposited into your bank account in one to 14 days, depending on the lender.

Customize your loan

Like a traditional lender, an online lender offers lots of options to help you customize your borrower experience. For example:

Choose your repayment term. If you need to keep your monthly payment low, choose a longer repayment term. If you want to save money on interest payments, choose a shorter repayment term.

Pick a loan that fits your credit score. Whether you have excellent credit, bad credit, or something in between, there's a lender that specializes in loans for you.

Opt for automatic payments. Not only will autopay ensure that all payments are paid in full and on time, many lenders offer an interest rate discount for borrowers who sign up for automatic payments.

Decide if you want to consolidate banking services. If you want a savings and checking account with the same financial institution, some online lenders offer banking services in addition to personal loans.

Pros and cons of online loans

Because there is no one-size-fits-all financial decision, it's important to weigh the pros and cons. Here are some of the great and not-so-great things about an online personal loan:

Pros

  • Simplifies the personal loan process
  • State-of-the-art technology makes application easy
  • Often faster to get approved than a traditional loan
  • Some of the lowest APRs in the personal loan business
  • Easier to get a debt consolidation loan to get rid of high-interest debts like payday loans
  • You can build credit by making regular monthly payments

Cons

  • Some lenders offer high minimum loan amounts, making it difficult to get a small loan for emergencies
  • If you need a bad-credit loan, you will likely be hit by a high interest rate
  • You may need to work with a brick-and-mortar lender If you want a secured loan (one where you put up collateral to protect the lender's investment)

What are the best online lenders?

As with any personal loan, you want to work with a professional, reputable lender. These four lenders are our 2022 Personal Loan Awards Winners:

  • LightStream: Best personal loan overall and best low-interest personal loan
  • SoFi: Best personal loan for good credit
  • Upgrade: Best personal loan for fair credit
  • Upstart: Best personal loan for bad credit

Alternatives to online loans

If you look around and decide now is not the right time for you to take out an online personal loan, you have options. Here are two.

0% promotional rate credit card

If you have a good credit score, you may qualify for a credit card with a 0% promotional APR. The best 0% intro APR credit cards typically offer the cardholder 12-18 months to repay the debt without paying interest.

Credit union

If you're a member of a credit union, you're considered an owner (or shareholder). As an owner, you have access to low interest rates for loans and excellent terms.

Although online loans are a relatively new phenomenon, millions of people have borrowed money from the convenience of their homes. If you're in the market for a loan, it pays to check what online lenders have to offer.

The Ascent's best personal loans

Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.

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