Best Online Loans

» MORE: Quick loans: Best lenders for fast cash

Pros and cons of online loans

It’s a good idea to weigh the pros and cons when deciding whether to go with an online lender versus an in-person lender like a bank or credit union. Certain features may vary from lender to lender, but here is generally what you can expect with online loans:

Pros

• Convenience: You can complete the entire loan process — from pre-qualification to signing — from your computer or, in some cases, your phone. The best online lenders also have mobile apps you can use to manage your loan.

• No-risk estimates: Most online lenders let you pre-qualify within a few minutes and preview estimated rates without impacting your credit score. (All lenders require a hard credit check before you finalize a loan.)

• Quick and simple shopping: Since each online lender uses its own underwriting formula, the rates can differ between lenders. Comparison websites allow borrowers to fill out one application to see loan offers from multiple lenders. This is easier than banks or credit unions that may only service loans in person or require you to visit a branch during the application process.

• More than credit score: Some online lenders look beyond your credit score and credit report when making an approval decision. They may consider your education or occupation, or ask to look at your bank account transactions to understand your financial behavior. These alternative ways to assess an application can improve your chances of getting a loan if you’re new to credit or have a low score.

• Debt help: With some online lenders, borrowers can opt to have the loan money sent directly to creditors with a debt consolidation loan, removing the burden of paying off individual credit cards.

Cons

• More expensive than credit unions and some banks: On average, loans from online lenders are not as cheap as those from credit unions. And if you already have a relationship with a bank, it may offer you lower rates than online lenders. Compare rates from multiple lenders online and offline before you take out an online loan.

• No face time: Some online lenders have physical locations, but many only service loans digitally. This can be a challenge if you ever want to speak to a representative face-to-face.

• Smallest loans not available: Online loans under $500 may be hard to find at rates below 36%. Many online lenders have loan minimums from $1,000 to $2,000. Some credit unions may be able to provide smaller loans starting at $250.

• Predators lurk: Reputable online lenders compete alongside predatory online lenders. Reputable lenders check your credit and ability to repay, and they usually have APRs that top out at 36%. Predatory lenders typically don’t check credit, but you pay for the added risk with APRs well above 100%.

» MORE: Online or in-person loans: What's better?

Are online loans safe?

The safety of online loans depends on the type of lender. It’s always recommended to do your research and choose reputable lenders.

If you’re looking for a small loan, online personal loans have lower rates and more manageable repayment terms, even if your credit is bad. Many can fund a loan for as little as $1,000 within one business day of applying for it.

No-credit-check and online payday loans

You may also come across online lenders that offer no-credit-check loans and payday loans. While they seem like easy options that don’t require credit checks, both of these types of loans can be predatory with rates in the triple digits.

No-credit-check loans do not review your credit history and can be expensive. The loan amounts typically range from $100 to several thousand dollars and are repaid in fixed amounts over several months.

Online payday loans are a fast way to get loans for amounts less than $1,000, especially if you don’t have good credit. Once you have received your loan, payday lenders typically draw directly from your bank account for payments. But these loans are not cheap, with APRs close to 400%, which can quickly lead borrowers to owe more in interest than the original loan.

Both no-credit-check and payday loans should be considered only as a last resort after you’ve exhausted alternatives to high-cost loans.

How to get online loans for bad credit

There are ways to qualify for online loans for borrowers with fair or bad credit. For example, you can add a co-signer or co-borrower to the loan application to boost your eligibility or get a lower rate or higher loan amount. This person is responsible for the loan amount and any fees if you fail to repay.

» MORE: Personal loans with a co-signer

You can also apply for a secured loan, which requires putting up collateral, like your car or a savings account, to help guarantee the loan. However, you risk losing the collateral if you default on the loan.

If you don’t need the loan immediately, you can take steps to build your credit before applying.

» MORE: How to get a personal loan with bad credit

How to shop for a loan online

Here are a few questions to ask as you search for online loans.

How's my credit? Know your credit score before starting an application. It can give you an idea of how much a loan may cost you and affect your budget. Many online lenders consider additional factors, such as your education history or profession, in conjunction with your credit score and credit history.

Is the APR below 36%? The sum of the interest rate and all fees is known as the annual percentage rate, and the APR you receive largely depends on your credit. Financial experts and consumer advocates agree that 36% APR is the acceptable limit for a loan to be affordable to a borrower. If an online lender has rates above 36%, it could be hard to manage the monthly payments, even if they fit into your budget.

Use a personal loan calculator to get an idea of estimated rates and payments on a personal loan.

Have I compared online loan features? Some online lenders offer features like flexible payment dates, an option to refinance an existing personal loan, or the ability to add a co-borrower or co-signer. Consider and compare loan features like these when shopping for an online loan.

How to get an online personal loan

1. Pre-qualify. Check rates with multiple online lenders and compare offers to find the lowest interest rate. The pre-qualification process involves a soft credit check, which doesn’t affect your credit score.

2. Select a lender and loan option. Pick the online loan with the rate, monthly payment, loan amount and term that best fit your budget and financial needs.

3. Collect loan documents. Upload the required documents, which may include a form of identification and proof of income such as a pay stub or W-2.

4. Complete the application and submit. Once you’ve read and understand the fine print of your loan, submit the application. Once approved, you may receive your loan within a day or two, depending on the lender.