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Are online loans safe?

Using an online lender is a legit way to get money if you choose wisely

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Getting approved for a loan is faster than ever with more lenders relying on online loan applications. Now you can skip a physical visit to the bank or credit union and complete the whole online loan process with your computer or mobile device.

While getting a loan online is convenient and generally safe, you might still have some concerns. The process of applying for an online loan requires you to send a lot of sensitive personal and financial information. It’s important to vet your lender before ever sending personal information.


Key insights

  • Online lenders use technology to help consumers find loans that suit their needs.
  • Some online lenders can provide faster loan approvals or lower rates and fees than traditional banks.
  • Identifying scams can keep you safe while looking for the right online lender.

What is an online loan?

An online loan allows you to borrow money without having to go to a physical bank or credit union. Instead, you can apply for a loan from an online-only lender or a traditional lender offering online loans.

Borrowing money online allows you to complete the whole process from home.

Online lending streamlines the process, thanks to automation. You can complete all the steps, from pre-qualification to submitting your documents and receiving funding, online.

Note that online loan applications will still result in a hard inquiry on your credit report.

» MORE: Requirements for personal loans

Are online loans legit?

As long as you are applying with a legitimate lender — a bank, credit union or online lender — taking out online loans is safe and legit. While receiving an online loan should be easier in the sense that you can do all your paperwork online, you will still need to meet your lender’s strict credit and income requirements.

If you are applying for a loan through a financial name you know and trust, you can use an online application with confidence. If you are not sure if the online lender is a legit one, use these tips to ensure you aren’t stepping into a scam.

“If you are dealing with a lender for the first time, visit your state banking regulator and make sure [the lender is] registered and in good standing,” said Andrew Latham, certified financial planner and director of content at SuperMoney. Latham recommended checking the Consumer Financial Protection Bureau (CFPB) list of state banking regulators.
Online reviews are a great way to learn about other peoples’ experiences with a company. Reviews and complaints can give you an idea of how a lender treats its customers and if there are any major concerns. Stay away from companies with many negative reviews.
There are some red flags you can look for to assess the legitimacy of an online lender.
  • Not requiring a credit check: Most legitimate lenders have criteria you must meet to qualify for a loan, including for your credit history.
  • Pressuring you into a loan: Scammers will often pressure you to feel like you need to rush through the loan process. A lender should encourage you to read the fine print and happily answer your questions.
  • Asking for upfront payment: If a company asks you for money upfront to cover the cost of your application, think twice. You should never have to pay money before you get your loan.
  • Calling you out of the blue: When you want to borrow money, you search for the lender. It’s not normal for a lender to contact you unprompted to offer you money.

Can I trust an online lender?

“A loan from an online lender is just as safe as one issued by a large brick-and-mortar bank as long as you’re dealing with a legitimate lender,” said Latham.

If you’re hesitant to use an online lender, there are specific features you can look for to help ensure the lender is safe.

  • Two-factor authentication (2FA): As a safety measure, an online site or app might require two separate forms of identification to gain access. For instance, you might have to type in your password and then enter a confirmation code that is sent to your cellphone or email address.
  • Encryption: Before sharing your personal and financial information online, ensure the site is encrypted. Encryption is a way of securing digital data. Look for the padlock symbol, usually to the left of your address bar.
  • Secure URL: You can also look at the company's URL (its website address) to see if it starts with “http” or “https.” The “s” is important because it stands for “secure” and helps to reveal whether the website is secure.

» MORE: Pros and cons of personal loans

Why consider an online lender

Only you can decide what you want from your loan experience. If you value face-to-face contact and want to ask questions about your loan in person, you may prefer going to a bank. If you value convenience and are digitally savvy, then an online lender may be the right fit.

Joseph from New York used an online lender and said that the online application process was very simple and thorough. “I feel that once they review your information and verify it they give you a reasonable quote,” he said.

Here are some other reasons why you might consider an online lender:

  • Fast preapproval: Many online lenders can provide loan preapproval almost instantly.
  • Lower interest rates or fees: Since online lenders don’t have the expensive overhead that comes with owning physical retail locations, you may find lower rates or fees.
  • Streamlined and convenient: Online lenders work to streamline your application and automate as much as possible. Completing the entire loan process online without leaving your home also offers a high level of convenience.
  • Fast access to loans: Some online lenders might offer you a loan within a day or two, while a bank could take a week or more.
  • More accessible: Some online lenders are more open to borrowers with low credit or those with a limited credit history.

» MORE: What credit score do I need for a personal loan?

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    FAQ

    Where can I borrow money online instantly?

    We get there are times when you need an online loan quickly, but lenders that promise fast funds can also have predatory practices, such as charging high fees and interest rates — making it challenging to repay your loan. Many legitimate lenders will still be able to finance your loan within a few business days if you’re approved.

    What is the difference between an online loan and a bank loan?

    The difference between an online loan and a bank loan is that, with an online loan, you can complete the entire process using your computer or mobile device. You pre-qualify online, submit your documents online and get your loan funded online. Traditionally, bank loans would require you to go to a physical bank branch and apply face to face. But these days, many banks also offer online loan applications.

    What do you need to get an online loan?

    While the application process will vary depending on the lender, you typically need to provide personal information such as your name, address, date of birth and Social Security number. You will also need to provide financial information, which may include proof of income, credit score and a list of debts.

    Are online lenders risky?

    Online lenders are not inherently risky. You can even find brick-and-mortar banks that offer online loans. However, it’s important you confirm the legitimacy of the online lender before completing an application. You don’t want to inadvertently use a fraudulent lender.

    Bottom line

    Before working with an online lender, do your homework and confirm the company's legitimacy. While most online lenders are safe, unfortunately scammers do exist. By taking simple steps like ensuring the lender is registered in your state and reviewing customers’ reviews, borrowing money online can be as easy as a few clicks of a button.

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