Though in the past most lending was conducted by lenders visiting borrowers in their homes or calling them into their offices, now an increasing amount of lending is done online, over the World Wide Web.
What are Online Lenders?
Online lenders – also known as online money lenders – are those lenders which allow clients to obtain consumer credit over the Internet. Whereas once online lending was the preserve of specialist lenders, now most traditional financial institutions offer credit in this way. The vast majority of banks and building societies now have websites letting customers apply for mortgages, overdrafts, credit cards and loans, with many decisions being done automatically based on the customer’s credit rating and history with the lender. This move to online lending has made the banks more responsive to customers and made the lending process quicker and more efficient.
Online Peer to Peer Lending
A recent addition to the online lending market is the introduction of peer to peer loans. These loans are offered by special peer to peer lenders, and bypass standard lending institutions: lending is done by private individuals and small investors to private individuals and small businesses. Anyone wishing to take out one of these loans should find one of the specialist websites that offer them: once they’ve inputted an amount they’d like to borrow, the site comes back with the best interest rate offered. It is possible that any offer made might be from more than one lender, although only one interest rate is usually shown representing the rate for the whole loan.
Online Payday Lenders
There is another class of lender that is heavily weighted towards using the World Wide Web as a vehicle for connecting with new customers and lending to them: online payday lenders, also known as payday loan companies. These lenders use websites to target those sections of society that have traditionally had trouble gaining credit elsewhere, for instance young people that have not had the chance to build up a decent credit rating; indeed, much of their business model involves targeting such groups.
Anyone visiting a payday loans website is able to apply for a loan after inputting some basic information, and can often have the money placed into their bank account in a few hours; for this reason these loans are sometimes called same day loans.
Problems with Online Lenders
One off the main problems with online lenders is that they can make it very easy for consumers to get loans when they may not be able to afford them; the speed of the process means borrowers can lack the period of reflection that comes with applying for loans in the standard manner.
In addition, online payday lenders in particular can charge extremely high interest rates, sometimes thousands of percent APR. Combined with the ease and speed of obtaining such loans, this means that it is easy for borrowers getting loans online to get into unmanageable debt very quickly.
Given this, it is advised that anyone thinking of getting a loan online should take advice before doing so, especially if they are suffering from debt problems already. There are a number of national debt charities that can be contacted for free debt advice focused on the subject of debt management, and they will all be happy to advise any borrower thinking of taking out further loans to deal with present debt problems.