low interest personal loans

Online Loans 101 - The Good, The Bad and The Ugly

By Team Carpe | February 03, 2016

If you find yourself looking for funds to cover short-term bills, emergency cash needs, home improvement loans or debt consolidation including credit card refinance, the Internet is now one of the best places to borrow the money you need.  That being said, the Internet is still, well … the Internet!  The online truth is rarely the actual truth, and it's harder than ever to know exactly which personal loan or unsecured / secured credit card options can actually help increase your cash flow, and which ones will turn you the wrong way.  

This expert online personal loan guide helps you navigate the credit approval and funding process for consumers with all types of credit scores. 

And as with all our guides, we start and finish with our in-house mantra on personal finance: 

1) Being in control of your financial journey is 80% behavior and 20% knowledge.  This means if you spend 5 minutes reading this best loan guide, we want you to spend the next 20 taking action -- whether that's reviewing your existing personal loan terms or asking our experts for a free financial to-do plan

2) Being on-track doesn’t just mean you are moving towards your goals – it means you are also prepared for financial shock.  Most financial mistakes are made when there are few choices, and if you get an unexpected bill or find that your income is dropping, you won't have many choices.  E-mail us here if you feel unprepared and are looking for advice on emergency funds or insurance options.

3) If any website can’t tell you they’re independent (as we are) or show you options from multiple lenders (as we do), be aware that you are being advertised to by a salesperson.  Invest the time to shop around for solutions, and be weary of those ubiquitous banner ads and envelopes in the mail with endless fine print.

And with that, let’s jump in… !


Online Loans 101 - Your Guide to Getting an Unsecured Loan or Credit Card on the Internet


Here’s what’s changed since we were kids – you can get online, shop around through an independent platform for the best loan rates (ahem) in a matter of minutes, get approved for an unsecured personal loan online in a few more minutes, and get the cash in your account within 24-48 hours.  Pretty neat.

Here’s what hasn’t changed – the lenders still want (need) to see stable income and good credit.  And a bit of a spoiler alert: if the lender you're talking to says they don't need income or there are no credit checks, that's about a good a sign as any as they're going to rip you off.  

As for what's out there, the underwriting standards and terms, especially collateral, will vary across lenders – as will the customer service.  The good news is that never in our lifetimes has there been such a large number of lenders.  And just like individual people, each individual lender and each type of loan has their own personality.

Here’s how we’d categorize your loan options and lender types: 


The Good: Peer-to-Peer Personal Loans 


What the heck is a Peer-to-Peer (P2P) loan?  Also known as a marketplace loan, or simply a personal loan from an online lender, a peer-to-peer loan is usually an unsecured term loan with rates between 5% and about 30%, and with amounts up to $35,000.  Online lenders could include the old school firms like Wells Fargo or Discover, all the way through to the newest breed of Silicon Valley firms using technology to revolutionize how we perceive and access money and credit.  The latter tends to have the best rates for online loans, but these change daily so we shop around to all of them.

The peer-to-peer personal loan marketplaces have been able to use low operating costs and large amounts of data to provide low-cost, unsecured loans in time periods (from application to close) that were previously uheard of.  The way it works is P2P platforms give you access to crowd-sourced funds from multiple individual investors.  This strategy spreads out the risk, making it easier for you to acquire funding.  It also allows you to interact directly with lenders, giving details about your loan needs and even providing opportunities to have friends vouch for you or use your social media network to gain credit credibility.  The personalized relationships that this kind of lending creates can boost your chances of being funded.  

The application process is also more streamlined than traditional loan sources, such as banks.  You complete the entire process online, with some platforms allowing you to submit applications from smartphone apps.  You'll have to provide the reason you're seeking a loan, such as for debt consolidation, student expenses or to make a large purchase.  The number one reason for taking out a marketplace loan is refinancing your credit card debt.  If you haven't tried it, and you are carrying a balance, you should get an offer now.  

All of this information actually plays a large part in your ability to secure a loan, setting P2P platforms apart from traditional lenders who generally don't take personal stories into account. Ironic that technology actually brings you closer to a financial service provider, isn't it?!  Humans are so 2012.

The interest on these peer-to-peer loans is almost always contractually fixed, and it's generally the lowest when compared to both bank loan and credit card rates at 8% to 35%.  The term is also fixed at one to five years, so you don't have to worry about paying an ever-changing amount indefinitely, as you would with credit cards.  So about those credit cards ...


The Bad: High-Interest Credit Cards 


Visa, Mastercard, Discover, AMEX - can't live with them, can't live without them, right?  Well, we think you can live without them.  After all, why should it be mandatory to subscribe to a system that is entirely incentivized to keep you in debt!  

Our basic rule with credit cards is to only use them if you are able to pay off the entire balance in full, every month.  With the increasing amount of options for lower-cost credit -- personal loans, home equity lines of credit, borrowing against your life insurance settlement value, we can go on and on -- we are increasingly down on using your plastic to finance small or large purchases.  The interest rates are just too high.

For convenience value, credit cards still play a role, for example in e-commerce transactions like buying a plane ticket on the web.  And there are indeed credit cards for all income levels and credit ratings, so it's as simple as applying for the myriad of offers online.  We acknowledge that credit cards can be a convenient way to pay for purchases, or as sources of funds in the form of cash advances, but just be aware that this usefulness often comes at a steep price.  And we're not just talking about the credit card interest rate.

It starts as soon as you make a purchase, as studies have shown that you will often spend more if you're paying with a credit card.  In fact, people spend an average of 12% to 18% more when they opt for plastic over cash, turning a $100 purchase into a nearly $120 purchase without a second thought.  

The average credit card rate is also highly variable, and can increase dramatically if you miss a payment or go over your limit. If you owe a significant amount and are only paying the minimum each month, it can take decades to pay off your debt. 

This is how card companies make their money, and the lending model is unfortunately designed to keep you in debt.  Otherwise, why is that "minimum" payment so low.  We're not fans.  Booooo.  (Yes, we just boo'd a trillion-dollar financial institution - we're rebels).


The Ugly: Payday Loans


Online Loans Unsecured Fast

Do we really need to elaborate?  Here's what we'll say, without hesitation -- we will never, ever, work with a payday lender.  If you use Carpe.com, you'll never see an ad for a payday lender or any lender that charges exorbitant rates for short-term or long-term personal loans / unsecured online credit.

On the surface, payday loans or consumer installment loans seem like decent short-term options for bridging gaps in income.  You can acquire a payday loan or title loan fast, without a credit check, making them accessible to a large assortment of people.  Approvals often happens within minutes, and you can have your money the same or next day in many cases.  They also have relatively flexible terms that allow borrowers to rollover unpaid funds into a new loan.

However, that money isn't cheap, and these advantages can quickly become detriments.  A lack of credit requirements and easy approval qualifications means that payday lenders have to charge much higher interest to mitigate their risk, with annual percentage rates of 400% or more.  The second you take out a payday loan, you've likely just sentenced yourself to a permanent bad debt situation.  If you're thinking about it, e-mail us here and let's talk about alternative options.

And if you're still thinking about it, note that the interest is often the cause of "loan rollovers" which is another way of saying interest-on-interest which is another way of saying debt explosion.  There is no such thing as a "good" debt explosion.  Beyond that, payday lenders also require access to your bank account, and have the legal right to take funds out to repay the loan.  They can easily clear out your coffers, making it impossible to meet your other financial obligations. 


Closing Time - Online Loans 101


Now that you know what you know, don't forget these three absolute truths for personal finance: 

1) Take action to improve your financial life – consolidate debt, lower your student loan debt payments, improve your credit score, now!  Your financial journey will improve as the TIME you spend on your financial journey also improves.

2) Expect the unexpected – if you already have personal loan debt, set up an EMERGENCY FUND in case cash flow dries up.  And never ever miss a payment if you can at all avoid it. 

3) The raw truth is that financial services companies are trying to sell you THEIR products.  Use a trusted advisor like Carpe.com to help you discover which of them will serve you best.  We are proud to say we are independent, consumer-first and 100% free.


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