Market Overview

Online Loans: Expectation Vs. Reality

Online Loans: Expectation Vs. Reality

Since the financial crisis of 2008, many banks have tightened the restrictions around their lending criteria, making it harder for borrowers to get approved for a loan. While there are many reasons for this, people are now turning to nontraditional ways to get approved for loans. One example is online banks, who are more than happy to lend where traditional big banks won't.

Here is a closer look at the expectations verus reality of choosing online loans.

Approval Process Timeline

Expectation: The loan will take weeks, or maybe even months to get approved, with a lengthy application process.

Reality: Online banks are known for their speed and convenience when it comes to regular banking, and this carries over to their loan approval process. Instead of having to go to a bank branch, you can apply for a loan from a computer or smartphone, at your convenience. The application might include a credit check or income verification. Online banks might even use an algorithmic application review, which could get your application approved within minutes.

Online Lending Relationships

Expectation: The online lender won’t care about me or my online loan. The lender might engage in predatory or dangerous lending behavior, and they are out to charge me outrageous fees.

Reality: Online lending relationships with non-traditional lending platforms, including online banks, have made it easy for people who would never have had access to a lending platform otherwise. The relationship between bank and client is much easier now. The customer can now easily access the bank, and attaining credit is much more accessible.

Interest Rates

Expectation: Online banks are trying to charge outrageous fees, or will charge me sky-high interest rates.

Reality: Because online banks don’t have as many overhead costs as traditional banks, it costs much less to run the bank. Therefore, many online banks will pass these savings on to their customers, and will give much lower rates.

While interest rates do depend on your credit score, an online bank will often offer loans with a less than 6% APR (annual percentage rates). The rate for the average personal loan is a little more than 17%.


Expectation: Online banks don’t really care about me, so they won’t offer any additional perks.

Reality: Just like every other business, online lenders are competing for their customers. Therefore, you will find random perks that are offered.

Ally Bank (NYSE: ALLY) pays you back for your loyalty. If you get your home loan with them, they will pay $500 in closing costs if you already have an account with the online bank. SoFi offers Unemployment Protection, which puts your loan on hold if you lose your job through no fault of your own. The company even offers career coaching to help you find a new job.

Online banks can be an excellent way to find a low-interest loan that is convenient and easy for you. It can be a hassle-free process to get an online loan, without having to jump through hoops or pay high-interest fees.

MoneyLion has entered into a compensation arrangement with Benzinga under which MoneyLion pays a fee for marketing and advertising services. MoneyLion does not have editorial control over the content of this material. MoneyLion does not adopt, endorse, or guarantee the accuracy of content posted by Benzinga, and such content does not represent the views of MoneyLion.

Posted-In: Education Personal Finance General Best of Benzinga


Related Articles (ALLY)

View Comments and Join the Discussion!

Biotech Stock On The Radar: Is Vanda A Buy Ahead Of Its PDUFA Date?

Report: Facebook Paid People To Transcribe User Audio