Online loans are the best way to borrow money from lenders by visiting their websites. Every stage of this process takes place online. Such an option of borrowing money helps clients to receive their funds fast. Nowadays, more and more people prefer to receive funds for their financial goals using the Internet.
It is essential to learn about online loans before taking them, and choose your lender and loan terms thoroughly.
What are online loans?
Online loans are the loans taken through the Internet. You can apply from home using your computer or mobile phone, and the funds can be sent to your bank account the next day. Online loans are typically issued as payday loans and personal loans. They are multipurpose short-term financial solutions with a high cost of borrowing. You can borrow them from online lenders, banks, or credit unions.
Major types of online loans
The borrower can apply for an online personal loan or online payday loan. Online personal loans are divided into two subtypes: secured and unsecured.
The distinction between secured and unsecured loans is the requirements of providing collateral. If you apply for a secured online loan, you must use your home, vehicle, or another asset as collateral. Unsecured online loans don't require collateral. The average interest rate of personal loans in Canada is 6.39%. The amounts of personal loans range from $100 to $50,000, and the loan terms range from 6 to 60 months.
An online payday loan is a short-term loan. The amount of a payday loan is usually up to $1,500. The main disadvantage of this type of online loans is expensiveness because of the fees. The payday loan term cannot be more than 62 days.
For example, the maximum allowable cost of borrowing for Ontario residents, Prince Edward Island, and British Columbia residents is $15 per $100 borrowed. Manitoba residents have to pay $17 per $100 borrowed, and Nova Scotia residents usually pay $19 per $100 borrowed.
How to choose an online loan lender?
Before choosing an online loan lender, borrowers should learn details such as interest rates, loan terms, fees, and payment terms. Every lender has its own interest rates. To learn this information and choose the best option, you need to compare different lenders by reading the necessary information on the websites. For example, lower interest rates usually mean you will repay your loan faster.
Also, the borrowers need to know how long they can borrow the money, that is, loan terms. The additional information the clients should learn is the existence of hidden fees. Moreover, the clients need to know if there are some prepayment penalties. To learn more about online loans and choose the lender, they must read the other borrowers' reviews on different websites.
How to apply for an online loan?
After choosing an online lender, you need to go on the lender's website to fill out the application form or get pre-approval. Then you need to write your personal information and confirm your bank account. Usually, online loan applications are quick and take from three to five minutes to fill out. Next, consider the application process for both personal and payday loans.
Eligibility criteria
Requirements for personal online loans usually depend on the particular lender, but the basic requirements are the following:
The borrower must be a Canadian citizen or have a permanent residence in Canada with a valid address;
The borrower must be 18 years of age;
The borrower must have a bank account;
The borrower has to meet credit score requirements (some online lenders allow to have a bad credit score lower than 560 points. The other lenders can approve the online personal loan only if a credit score varies from 560 to 659 points);
The borrower has to meet all income requirements and a proof of income.
Application process
If you decide to borrow money for your financial needs from an online personal loan lender, you need to take the following steps:
First, fill out the application with your personal information. You need to write such information as your full name, birth date, address, Social Insurance Number, residency status (permanent resident or citizen), details about your employer and monthly income, the purpose of the loan, the amount of money you're going to borrow, loan terms and interest rates which are preferable to you, and contact information (phone number and email address).
Second, wait for pre-approval. Some lenders offer pre-approval to borrowers. Thus, they can compare loans from different lenders and review potential rates and loans terms. After borrowers submit their applications, the lenders will use these details to determine whether borrowers can be approved for loans. But it doesn't mean that a pre-approval offer is completed. Borrowers also have to back up the information they provided with proof of their employment, pay stubs, and other documents to verify their identity.
Discuss loan offers with a representative. The next step for a borrower to secure a personal loan is working with a loan officer to set up the loan and your terms. Borrowers don't have to accept the full amount a lender has pre-approved them for. They can borrow only what they need and can afford to pay back to avoid a debt trap in the future.
You need to determine the following terms of your personal loan:
The amount of money that you borrow;
Repayment terms;
Fixed or variable interest and interest rate;
An asset to secure your future loan (or you will use a loan without collateral);
Borrower's repayment plan (how often you will pay: weekly, every fortnight, or every month);
Automatic withdrawal of money from the borrower's bank account.
Proceed with a loan offer and provide the required documents. At this stage, you can make the application process go faster. You have to specify what documents you have to provide to your lender. Usually, borrowers provide the following:
Valid government-issued ID. It can be a driver's license or passport.
Proof of your employment. Typically, lenders ask you to provide your last three pay stubs or your last 2 T4s.
Proof of your address. The lender may ask for your official mail or documents with your full name and address on them.
Bank statements. It helps lenders to determine how much money borrowers earn.
Social Insurance Number (SIN). It's necessary in order to check the credit scores of borrowers.
The contact information of the borrower's employer. Some lenders ask for contact information of the company where the borrower works, as well as the contact information of the employer.
Wait for official approval. After the borrower submits the required documents to verify their identity and income, the lender will start a hard credit check and give the final approval.
Review and submit the contract. After your lender has completed its due diligence, it will provide a lender with a final loan offer, including how much borrowers have been approved for, their loan terms, and all the details they discussed while negotiating their loan's terms and conditions.
After all steps mentioned above, the borrower has to read their contract carefully and sign it. But before signing the contract, the borrower has to pay attention to some details such as monthly cost, total cost, fees, and terms and conditions of the loan.
Get funds. At the final stage of this process, the borrower has to receive the funds for their loan. Usually, lenders transfer funds to borrowers by Interac e-Transfer or via direct deposit. It takes a few business days.
If the future borrowers want to apply for a payday loan, they need to do the following before they sign payday loan agreements:
Go to the payday loan lender website. Push the "Apply Now" button on the homepage, select their province and choose "Payday Loan" from different loan options.
Then the borrower has to fill out the application with some personal information, such as full name, date of birth, home address, phone number, and email.
Then the borrower has to provide some information about his employment. For example, the name of the company, its address, job position of the borrower, monthly income, etc.
The borrowers need to make sure they have a checking account, routing, and institution number. Some payday lenders also accept post-dated checks.
Ways to pay back the online loan
Many payday lenders require borrowers to pay back their loans at the same location where they got their loans. In some provinces, payday lenders don't extend or rollover borrowers' payday loans.
If a borrower applies for a personal loan, they accept an online loan agreement. There is a pre-authorized debit. It means that lenders can ask a borrower for their banking information and make the payments directly out of their accounts. Also, the lender can send some details about the personal loan payments of the borrower to the credit bureaus.
If a borrower doesn't stick to the payment schedule, it will reflect on their credit score. But if they make payments on time, they will have the opportunity to improve their credit score.
Also, borrowers are allowed to make extra payments or pay off their loans before the end of the term and won't even have any penalties. Thus, borrowers will save on interest fees and repay their loans earlier. But if it happens, lenders can charge fees.
Moreover, a borrower has a right to renegotiate the terms of the personal loan agreement with a lender. The lender can charge a fee for such a service. It will help the borrower manage their budget in case their financial situation changes.
Legal regulations of online loans
Payday loans in Canada are regulated by section 347.1 of the Criminal Code. There is also a fast Payday Loans Act in Canada. It protects people who decide to borrow money. There are some rules about maximum fees in many provinces of Canada. Such rules and regulations usually depend on the province where the borrower lives. In many provinces, payday lenders must have licenses.
If the borrowers don't pay back their loans on time, they can face the following consequences:
If they don't have enough money in their accounts, the payday lenders may charge fees.
The total amount of money, along with the fees, will grow.
A lender has the right to contact borrowers' families, friends, or employers to collect their money.
Payday lenders can cooperate with collection agencies, and they can seize assets or/and sue borrowers for debts. All of it can be reflected in borrowers' credit reports.
Payday lenders have the right to go to the courts to make money from borrowers' paychecks (also known as garnishing their wages)
So, every future borrower has to take into consideration that if they don't make the loan payments on time, they can get stuck in a debt trap.
The true cost of online loans
The real cost of every online loan is not only the amount of money you borrow, but also interest rates, fees, and penalties. Some lenders may have extra charges, such as origination fees and prepayment penalties. Borrowers should ask the lenders about the total cost of borrowing before applying for the loan. Clients should ask for details about all the fees, charges, and interest. The date loan is due, etc.
If you don't have an opportunity to pay back your loan on time, you need to ask about fees. Keep in mind that such fees usually vary from $20 to $50.
