Are online personal loans safe?

If you’re considering using an online lending platform, but have concerns about the safety of this option, you’re not alone. This is a common concern for many individuals, yet it’s a safe option with the right precautions. That’s why we’ve put together this guide to help explain why online personal loans are safe and how you can verify the authenticity of an online lender.

Is applying for a loan online safe?

It’s important to consider that there are risks associated with any financial transaction, but using an online lending platform for a personal loan is generally safe. Online personal loans are typically just as secure as a loan originated from brick-and-mortar lending institutions, as all reputable lenders must follow the same strict lending guidelines.

There are many online lending options that you can choose from between the big names that are easily recognizable, to the smaller, yet proven lenders in the industry. Although scam lenders do exist, they’re usually pretty identifiable when you know what to look out for.

How to figure out if an online lender is safe

Before you submit your online personal loan application, it’s smart to take a few moments to verify the authenticity of the lender you’re considering using. Here are a few strategies you can use to identify if a lender is legitimate.

Check their licensing and credentials

Researching a potential lender’s website is an important first step in verifying their authenticity. On their website, you should look for a license disclosure or a list of their licensing and credentials that can verify that they are legally able to conduct business. If you are unable to find this information, you may want to proceed with caution.

Use internet reviews

The internet can be a great source of information for vetting a business. Using websites such as the Better Business Bureau (BBB), Google Reviews or Yelp can provide you with reviews from past customer experiences. Although some of these sites may just be filled with customers looking to complain about their specific experience, it’s still a good idea to check that the company has not been mentioned alongside such words as “scam” or “fraud.”

Ask your friends and family for referrals

One of the best ways you can choose a reputable online lender is by asking your friends, family or co-workers for referrals. If you know anyone who has used an online lender in the past, they can provide you with the name of the company and an honest opinion as to what their experience was like dealing with them.

Red flags for online personal loans

When it comes to vetting a potential lender, the red flags are usually easy to catch. Here are some things you should be on the lookout for.

They don’t show interest in your financial history

No matter what your financial history is like, a verified lender will be upfront about their qualifications and the credit check that they’ll need to run. If a lender approves you without checking your credit score for a personal loan, your income or on-time payment history, this is a red flag. Scam lenders often look for high-risk borrowers who they can make larger profits from with penalties and late fees.

They seem demanding

If you’re working with a lender and they seem to be too demanding, you may want to be cautious about proceeding. Here are some potential red flags that might indicate you're working with a spam lender:

• They strongly suggest that you use a prepaid credit card.
• They put pressure on you to act immediately.
• They try to target you through the phone or door-to-door solicitation.

You’re unable to find a physical address for the business

You should be able to find a physical address for any lender easily on their website. If you can’t find this information anywhere, it may be a scam. Also, fraudulent businesses have a tendency to provide fake addresses or addresses of vacant lots, so even if you have found an address, it doesn’t hurt to verify it through an online map service.

They’re not transparent about their fees

It’s common for some lenders to charge fees for processing the loan or running a credit check, so they should be upfront about these fees. If they do not disclose these fees on their site or when asked, this can be a major red flag. Scammers will often approve their customers for a loan and then immediately demand a fee from them.

Should you get a personal loan online?

Online personal loans may not be the right choice for everyone, but for many, they are a more convenient way of obtaining the funds you need. Let’s take a look at some of the pros and cons of applying for a personal loan online.

Pros

• They're a convenient option. Applying for a loan online can be a convenient way to explore your options. For starters, the entire process can be completed from the comfort of your couch. You can view offers from various lenders at once. For these reasons, many people prefer applying online versus in person.
• You can prequalify without impacting your credit. Many online lenders offer an option for prequalification using a soft credit inquiry, allowing you to see if you will be preapproved without impacting your credit score.
• The loan approval process and distribution may be faster. Going through a brick-and-mortar lender can often take a long time to process, approve and receive funds. Because much of the process is automated, online loans typically have faster processing times. At Rocket Loans^SM, we offer same-day funding to qualifying personal loan applicants.
• Online lenders may offer better interest rates and lower fees. Because online lenders tend to have lower overhead costs, they may be able to offer lower interest rates and lower fees to qualified borrowers.

Cons

• You have to be comfortable submitting personal information online. The process is fully completed online, you’ll need to be comfortable submitting your financial and personal information through the computer.
• There’s no face-to-face interaction with online lenders. Although most online lenders have customer service representatives and lending officers that are more than willing to work with you, some individuals may find it difficult to complete their application without face-to-face interaction.

The bottom line: Do your research when applying for a loan online

While fraudulent online lenders unfortunately exist, knowing what red flags to be on the lookout for and how to verify their credentials can help you avoid any risk of being scammed.

Once you’ve verified your online lender, you can safely take out an online personal loan as you would with a traditional lender.

If you’re ready to apply for your online personal loan, get started with Rocket Loans today.