Money BasicsBorrowing & Credit

Pros and Cons of Online loans

Many Filipinos may find the need to take out a loan every now and then. But sometimes, the amount they need is relatively lower than the amount traditionally taken out for home or car loans. Some need fast loans to pay off a small debt, a utility bill when their paychecks are running late, or an emergency that throws off their budget.

This is where online loans come in. Convenient, fast, and legal, these loans have helped many Filipinos get through a small financial speedbump.

If you’re considering taking out an online loan, here is what you need to know about it as well as its advantages and disadvantages.

What are online loans?

Online loans are quick and convenient loans that can be availed online without having to go through a rigorous screening process. Unlike regular bank loans, you do not need collateral to secure your loan. It only requires minimal documents for identification purposes. These loans are approved quickly without the need to visit the lender’s office. The amount is transferred to your bank account right away.

Online loans vs. bank loans

Bank loans are traditionally used for bigger items like home or auto loans. This means that the approval process is stricter and requires more documents to ensure a person’s ability to repay a large amount.

Online loans, on the other hand, get approved in as fast as 24 hours and only require documents for identification. However, the amount that a person can loan is much less than what one could get if they apply for a loan in a bank.

There are various types of online loans available in the Philippine market. These include:

  • OFW Loans– For Overseas Filipino Workers and their families that need a loan for a work contract
  • Quick Cash Loans– Regular short-term cash loans to be repaid
  • Salary Loans– Short-term loan that should be paid in full or in installments when you receive your next paycheck

Advantages of online loans

  • Unsecured loans- You do not need to provide collateral property to secure a loan, which is convenient if you do not have a property or anything valuable to use as collateral.
  • Flexible repayment- Many online loan apps offer flexible repayment plans to make it easier and more convenient for you to repay your loans.
  • Growing credit limit- First-time borrowers will have a lower maximum loan amount, but as you continue paying your dues on time, these apps provide higher maximums.

Disadvantages of online loans

  • Higher interest rate- Because the loan is unsecured, the interest rate will be much higher than traditional bank loans.
  • Smaller maximum loan- If you’re a first-time borrower, you may find that your maximum limit may not be enough to cover your expenses as the maximum amount you can loan is much smaller than what traditional bank loans provide.
  • Risk of hacking and scams- Be careful about the data you share and the online loan apps you use, as these can be prone to data hacking since the whole loan process is done online. Make sure you use online lending platforms registered with the Securities and Exchange Commission.

Should I get an online loan?

It ultimately depends on the purpose of your loan. If this is a significantly small loan that can be paid with your next paycheck and you don’t mind the higher interest rate, then getting a fast online loan may be the faster and more convenient solution.

But if you’re looking for a significantly large loan to buy a home, vehicle, or high-cost property, your only option would be to consider a traditional bank loan. It is not a quick process, but when you’re dealing with long-term loans with smaller interest rates and higher maximums, bank loans are the more practical solution.