As the pandemic continues, most individuals are reluctant to go out of their homes, even when it comes to borrowing money. Luckily, online lending has been on the rise for the past decade, and there are now hundreds of companies and organisations are offering loans over the internet.
Besides how convenient it is to borrow money from them when compared to a bank, they also have the advantage of not performing credit score checks when processing loan applications. Furthermore, using these services is perfectly safe as most of them are authorised and regulated by the government.
This having been said, there are several types of loans that individuals can access using online platforms, each with their own restrictions and benefits. Here are the main ones that can be accessed from the UK:
- Payday Loans
Payday loans are short-term loans that are usually designed for individuals that are having a difficult time balancing their monthly income and expenses. These have small value limits and high-interest rates; however, they are extremely useful for those who need money as fast as possible. The main downside with them is that the term for the loans is usually two weeks or less.
When it comes to the requirements that borrowers must fulfil, most online lenders only ask for proof of income and proof of address. They do not perform a credit score check, and smaller loans are usually not reported to the credit registers.
- P2P Loans
These loans are offered through platforms that connect borrowers to lenders. The ones that are offering the financing are usually regular users, and the platform only perceives a small commission for supervising the lending process.
Different P2P platforms have different limits when it comes to how much you can borrow, which makes it useful to shop around until you find the right one for you. Furthermore, the amount of time needed to connect a borrower with a lender often depends on the amount loaned.
- Online Installment Loans
Online instalment loans tend to be small in terms of value and must be repaid on a monthly basis. The term of the loan is somewhat flexible, ranging from 6 months to 2 years. As for the size of the instalments, these depend on how much money is borrowed. Online instalment loans can also have either fixed interest rates or variable ones.
- Guarantor Loans
As the name implies, these are loans where another individual may agree to back up the borrower in the case that he cannot repay the money. These are great for those who have a low credit rating, as long as the guarantor has had a good track record.
Crowdfunding is still a somewhat new concept. It allows individuals to make a funding proposal that others can see and decide if they should contribute to his financial goals. For example, if an individual has a product idea, he may create a presentation that others will see when considering if they should finance it.
The main advantage of crowdfunding platforms is the fact that they do not offer actual loans but free financing. In other words, the money does not have to be returned. However, most platforms allow users who seek financing to offer small rewards to those who contribute to their financial goals.
Which Is Better and for Whom?
This depends largely on what you need the money for. Each of the loans caters to the needs of very specific individuals. The common advantage of every one of them is that the borrower’s credit score is not important. Making the right choice is more a matter of establishing if you are prepared to pay the high costs of a fast loan or if you are willing to wait for a larger but longer-term loan to be approved.