How To Apply for Loans Online - A Simple Guideline

A simple guideline for what to expect when applying for loans online!

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By Ben Harper

Online loans have a distinct advantage – you can receive the funds FAST. Sometimes you’ll receive funds as soon as the next business day.

They are a great option, but before you apply online for a loan, learn what to expect, what to look for, and how to get approved.

What Should you Know Before Applying for a Loan Online?

When you apply for an online loan, you apply with either a traditional lender (but online) or an online-only lender. One isn’t better than the other, they both offer loans. It depends on your needs.

Online lenders often have looser guidelines, cheaper rates, and faster funding processes. Before you apply, though, confirm their legitimacy. If any of the following are true, look elsewhere:

  • The lender doesn’t pull your credit or care about your financial history
  • The lender asks for origination fees upfront
  • The lender isn’t registered in your state
  • The lender’s website doesn’t start with https
  • There’s no contact information

Stick with lenders you know – such as your local bank or credit union (but online). If you must look elsewhere, use reputable online lenders you know are legit either from others or doing your own due diligence.

What Information do you Need to Apply for a Loan Online?

Online lenders need the same information ‘in person’ lenders need including:

  • Your credit score
  • Proof of your income and employment
  • Social Security number
  • Proof of assets (in some cases)

You must prove you can afford the loan and that it won’t overextend you financially. Lenders will compare your monthly income to your monthly obligations, including the new loan to make sure it’s within their parameters (usually 50% or less of your income should cover your monthly obligations).

How to Get Approved for Online Loans

Online lenders often have more lenient guidelines, but all lenders require proof that you can afford the loan.

To get approved, maximize your qualifying factors including:

Maximize your credit score

Shoot for a credit score of 680 or higher. Make sure you pay your bills on time, lower your credit card balances, and take care of any negative credit information (collection, judgments, etc.).

Lower your credit card balances

Lenders consider high credit card balances risky, plus it lowers your credit score. Keep your credit card balances at 30 percent or less of your credit limits.

Keep your employment and income stable

Lenders don’t like ‘job-hopping’ or inconsistent income. Keep your employment and income as stable as possible.

Have compensating factors

If you have a lower credit score or a new job, have factors that offset it. A low debt-to-income ratio (debts compared to your income) or liquid reserves on hand are always great options.

When you apply online for any type of loan, make sure you’re working with a reputable lender. There are thousands of online lenders, but there are just as many scammers too.

Ensure the lender is legitimate and has a program you can use. Most online lenders do a ‘soft credit pull’ to pre-qualify you for a loan. This doesn’t affect your credit score, and gives you a chance to determine if the lender is a good fit.

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Ben Harper

Ben is a personal finance writer with SimpleDirect, where he focuses on topics such as personal loans, credit cards, and offering financing.

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