The ongoing Covid-19 pandemic has had a considerable impact on banks and many traditional private lenders. Everything from the availability of new loans to interest rates was affected. This has made their services inaccessible to individuals with low credit ratings, however, it has also rendered them unappealing so many potential borrowers. The financial uncertainty that the whole world is experiencing has made many to avoid borrowing money from banks under the fear of not being able to repay the debt. However, while the pandemic has had a considerable impact on traditional lenders, it seems that online-based lending companies and services have been largely unaffected.
This having been said, many are currently looking to determine if online lending services are, at least for the time being, more stable than banks and other traditional lenders such as credit card companies. While it does appear that online-based lenders have more internal financial stability, the nature of their services does make it important to think twice before borrowing from them.
Banks Offer More Transparency than Online Lenders
Whether you need to get a secured loan, are looking to open a savings account, or simply need a payday loan, banks will always offer complete transparency. In other words, they will never include hidden or situational charges in their agreements. The costs of the financing will be established from the start and it will remain fixed, for the most part. The cost of variable interest rate loans may change over time, but no additional charges will be introduced other than the ones present in the agreement.
On the other hand, some online lending services do not offer the same amount of transparency and may try to hide various charges from the borrower. This makes it important to read the user agreement of the platform that you intend to use, the loan agreement, as well as any other client-related documentation that is present on the lenders’ website. Generally speaking, a quick Google search should show whether or not an online lender is to be trusted or not.
Online Lending Services Move Faster than Traditional Lenders
Banks tend to move slowly when it comes to evaluating loan requests, especially during times of economic instability. This is because they need to perform credit rating checks, evaluate short-term and long-term risks, and also look at the borrower’s entire financial file. Overall, this can take up to a month which may be problematic for individuals who urgently need money. Online lending services, on the other hand, can take as little as 24 hours to evaluate a loan request and also transfer the money to the client. Furthermore, most of them do not perform credit rating checks, which mean that more individuals will have access to loans.
Please keep in mind that there is a chance that taking out a loan from an online company and repaying it on time may not contribute to your credit rating as some lenders do not report their transactions to any of the main credit reference agencies in the country.
Not Everyone Needs to Borrow Large Amounts of Money
Banks are often focused on large loans that have values of at least £4000-£5000.However, online lending platforms are designed to help individuals access microloans. They cater to borrowers who need small amounts of money as quickly as possible. In many ways, it is possible to use these services as substitutes to credit cards, with the added advantage that borrowing money from them weekly will not harm an individual’s credit rating.
Deciding between borrowing from a bank or an online service during the pandemic is mostly a matter of determining how much money you need. Online lending companies are great when it comes to small loans (usually up to £2000), however, if you need a large personal loan you will probably be better off going to a bank. Even with the added economic instability caused by the pandemic, banks may offer borrowers government-secured loans or other deals that are unavailable through online platforms.