Main differences between traditional loans and online loans
Although traditional lending institutions are still essential to the banking industry, online lending platforms are growing in popularity. Digital lenders have the ability to provide same-day lending, where you can’t always get your loan funded within the same business day, but it won’t take several weeks like with traditional lenders.
Let’s dive into what sets these two lending platforms apart.
Applying for a loan in banks and traditional credit institutions requires physically going to a branch, filling out often long application forms and submitting supporting documents. Some banks allow borrowers to submit an application form online, but you still need to physically visit them before processing or approving your loan.
With digital lenders, the entire loan application process is done online, so it’s convenient and quick.
It is more difficult to qualify for a loan through traditional banks than through digital platforms. Banks look at your current income, assets, employment history, housing, and credit score to determine your creditworthiness.
Digital lenders always consider a borrower’s credit history, credit score, and current income when determining creditworthiness. However, they also look at someone’s level of education, work history, and social media clearance. That’s why small business owners opt for online loans when they don’t qualify for bank loans.
When you borrow money from conventional lending institutions, you should visit or contact several banks to compare interest rates and loan terms.
On the other hand, some digital lending platforms have access to multiple lenders. When you submit a loan request, the platform connects you with a lender, who then provides you with the terms and conditions, and you can accept it if you wish. You don’t have to take out a loan you’re not comfortable with.
Traditional banks and credit institutions require borrowers to submit more documents than online lending platforms. For example, suppose you are a small business owner and you are looking to apply for a loan to gain capital or expand your business. In this case, you must submit business summaries, investment information, business plans, tax returns, and legal documents, among others.
Although some digital lenders require you to submit these similar documents, this is not always the case as they often require less paperwork. Often, alternative lenders only need you to link your financial accounts when applying.
Treatment and funding
Conventional lenders often take a while to process and fund your loan. The waiting period can take weeks to months, so if you need funds for emergencies, this may not be a good option.
On the contrary, due to recent advances in technology such as automation, digital lending platforms can process loan applications within hours and release funds within days, making them the ideal option for small businesses and startup owners who are in dire need of funds.
Traditional lenders often have outdated systems that prevent them from providing their services to consumers as quickly and efficiently as online lenders.
On the other hand, online lenders apply advanced technology to every step of the loan process, from application to disbursement. They also work hard to ensure that their interfaces are intuitive, user-friendly, transparent and functional.
Finally, online lenders understand the importance of ensuring that any data they collect is secure. They use state-of-the-art cybersecurity measures to prevent cyber threats and identity theft.
The future of lending is digital. With this, online lenders are gaining popularity over traditional banks. They are especially an ideal option for small business owners who do not qualify for loans from conventional lending institutions. They offer many benefits, such as faster processing and funding times, less paperwork, online applications, and advanced technology. However, online lenders are not as regulated as traditional lenders, so borrowers may be subject to abusive lending practices. Weigh the pros and cons before making your choice.
John is a financial analyst but also a man with different interests. He enjoys writing about money and giving financial advice, but he can also dive into relationships, sports, games and other topics. Lives in New York with his wife and a cat.
(Devdiscourse journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse claims no responsibility for them.)