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Is an Online Loan Right for You?

Online lending is popular due to ease of access. Financial institutions have also embraced the movement and made some of their services available online. Nevertheless, banks and credit unions are still referred to as 'traditional lenders.' Payday loans, often called peer-to-peer loans, are among the most popular online loan products.

The Ups and Downs of Online Loans

You can apply from your PC or smartphone, and the application process is simple. Online lenders don't follow the same complex credit checks as financial institutions do. For that reason, if you qualify, approval is granted in a matter of days.

The main downside of borrowing money online is the high interest. If you cannot repay the loan on time, your fees increase. And you have between 14 and 30 days to repay your loan, together with interest, which will affect your budget for next month. Be aware that statistics link payday loan debt as one of the factors leading to bankruptcy.

Do the Math Before Borrowing

Take some time to crunch the numbers and estimate if it is realistic for you to repay the loan on time. Double-check all costs and fees. Calculate the APR and compare it with other loans. Consider the worst-case scenarios. How much more will you have to pay if you ask for an extension?

Make Sure You Trust the Service

Steer clear of scammers and shady websites. If something seems off or too good to be true, it most probably is.

Consider the Limitations

There are state regulations that apply to payday loans, and they will be different, depending on the state. Also, there is a limited amount of times (an average of 6 per year) you can take a payday loan. It's worth revisiting other backup plans for financial difficulties.

The Trap of Debt

If you find yourself in the situation of repeatedly applying for online loans when cash gets tight, look into managing your budget. If you spend more than you earn, it is easy to fall into a vortex of debt, where you always owe money. If you are thinking about taking an online loan to pay for another, don't do it. Consider alternative options, borrow from your family, but avoid the dangers of added debt. If you are aware of your upcoming financial issues, a personal loan might be more suitable for you until you figure out a long-term strategy. Short-term debt is for short-term trouble.

Set Your Priorities Right

Depending on what you need most and what you would least prefer, determine the right type of loan to consider. In the example below, circling what looks better in terms of a loan will help you decide.

Online payday loans Criteria Traditional loans
up to $1,000* amount needed $1,000+
up to a month repayment time 12+ months
$15 to $30/each $100* interest depends on the amount*
higher* APR lower*
1 business day* average loan processing time 20-30 days*
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