The personal lending industry has continued to increase over the past few years. In fact, in the United States, data from the Federal Reserve shows that lending to individuals has more than doubled since 2016. This has been driven mostly by the increasing number of online lending. Today, people don’t have to queue in a bank to get financing. Instead, they can easily get the funds they need by using a mobile application. In this article, we will look at the top benefits of online loans.
No Security Needed
Online loans are different from other loans because they require no collateral. Instead, companies use a customer’s data to determine their ability to pay. They use data from credit bureaus like TransUnion and Equifax to know whether a borrower is able to pay. These companies gather a customer’s information from banks and other places they borrow. Therefore, you can get financing even if you don’t have a security like a car or a piece of land.
In the past, it took a number of days to have a loan processed. In some cases, banks used to take days to determine whether to lend money or not. This is not the same with online loans. Most companies use artificial intelligence and machine learning to determine the credit worthiness of a customer. They then use this data to instantly know whether the person is a good borrower. Therefore, if you are in an emergency, an online loan can help you faster.
In the past, online and unsecured loans were known for their exorbitant interest rates. This used to be the case. Indeed, unsecured usually have higher interest rates than secured loans. This is simply because the lenders want to hedge their risks. However, the reality is that interest rates charged by online lenders is reducing. It is reducing because of the nature of competition in the industry. In the United States, companies like Lending Club, Prosper, and SoFi have come up. Even large companies like Goldman Sachs have moved to the industry. The same is happening in Europe and Africa. In Indonesia, Tunaiku Android and Tunaiku iOS apps are among the best-performing in the two stores.
Banks rely mostly on your credit score and cash flow to determine whether to give you money. Mobile lending companies have come up with different ways of determining your creditworthiness. When signing up, you give them access to your mobile phone. They can use their algorithms to see how frequently you use your phone. They can also use other data points to determine how credible you are. This is a better way because it is not based on a single number.
Online loans are great because they help people who are in emergencies. They are efficient and tend to improve in due time as you build your relationship. At the same time, there are some drawbacks for these loans. For example, they have higher interest rate than secured loans. They also have a shorter maturity period. Also, they tend to be in relatively small amounts until you build your trust with the lender.