A little research can lead you to an online lender that’s perfect for you.
The first bank in the United States opened its doors in Philadelphia in 1791. Until recently, obtaining a loan worked in one way: you visited a regular bank, talked to a loan officer, filled out an application and waited for a response.
You have other options today, including online lenders with less overhead and potentially lower interest rates. But are online lenders safe? Here’s how to know if you’re doing business with a reputable lender and how to spot a bad player a mile away.
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Why Consider an Online Lender?
Most online lenders focus on a specific type of lending, such as personal loans. They are also more likely to consider a candidate that a traditional lender might turn down. Since online lenders have lower overhead costs, highly qualified borrowers have access to benefits such as low interest rates and quick and easy response time.
Not all online lenders fund their own loans. Some partner with traditional banks, while others use peer-to-peer lending, which includes financing of loans by investors depending on the risk they are willing to take.
Since most of the online loan process is automated, this is a great way to go through the underwriting process and get funds quickly.
Finally, while traditional financial institutions may have a narrow view of the clients they want to work with, there is online loan available to all types of borrowers, including those looking for personal loan for borrowers with bad credit history…
But is it safe?
The short answer is yes, online loans are safe. This is because legitimate lenders must adhere to the same strict lending rules as regular banks. There are big names like Discover and Marcus from Goldman Sachs and established industry leaders like SoFi, Avant, Upstart and Payoff. This is not to say that there are no bad players, but the bad guys are pretty easy to spot.
How to check a lender
If you come across an online lender you’ve never heard of (or want to dig deeper into a name you know), these five steps can help you understand how trustworthy the lender is:
1. Check federal registration.
The Federal Trade Commission (FTC) requires legitimate lenders to register in the states where they do business. The easiest way to verify that a lender is registered is to enter the lender’s name into a search engine and then the words “government licenses”.
For example: “Upstart State Licenses”. You may have to scroll down the page, but you can usually find a page that lists company registration numbers. If not, ask the lender about the states in which he is registered to work and ask for his registration number.
2. Call the office of your state attorney general.
The state attorney general’s job is to defend your interests. Call them to make sure the lender you are considering is registered with the appropriate agencies. All you need is the name of the lender.
3. Find out their rating from the Better Business Bureau (BBB).
Of course, most of what you read about the company on the BBB website is written by dissatisfied customers. However, comments (and ratings) can give you an idea of what to look out for. Other sites like Yelp, TrustPilot, and Google Reviews can provide information as well.
4. Ask friends and family
Friends and family are unlikely to be wrong. If you are close with someone who has taken out a personal loan, ask about their experiences, including who they have worked with and if they will borrow from them again.
5. Search the Internet.
It’s hard for a bad player to keep personal loan fraud from the news. A simple search on Google News should reveal any issues the company is having.
How to recognize a skunk
Certain behaviors should automatically trigger alarm. For example:
- The lender puts pressure on you to accept the loan.
- You cannot find information about them on the Internet.
- They ensure that you are approved regardless of your credit history.
- They ask for prepayment.
- They contact you (by email, text or phone) asking if you would like to borrow money.
- They continue to contact you even after you said no to them.
- Your state’s attorney general’s office does not list any records of them.
Although there are bad apples, most are online personal loans safe and reliable. As long as you try to spot red flags and do your lender screening homework, you’re as safe as you would be at any bank or credit union. Since online lenders have more flexible lending standards and can often exceed the interest rates and terms offered by traditional lenders, you can even get your money up front.