While applying for a personal loan can be a great financial tool to help you consolidate debt and pay for your dream wedding or vacation, selecting a personal loan provider is a serious financial decision.
There were over 4 million unsecured personal loans originated in the last three months of 2015 alone, and with new online lenders entering the market along with traditional banks, how do you know which company to choose? Should you borrow from a traditional bank or a Fintech (Financial Technology) peer-to-peer lender? Do you know the difference?
Continue reading to learn:
- What to look for in a personal loan provider
- The difference between banks and Fintech startups
- Potential red flags to watch out for
What To Look For In a Personal Loan Provider
You may already know what you’re looking for in a personal loan product – low APR, no origination fee, etc. – but it’s also important to know what you should look for in a lender. Your personal loan provider matters. Have you worked with the lender before? Have you even heard of the lender before?
When you apply for a personal loan, the stability and reliability of the company is important. It’s not just about the loan features, but the customer service and communication throughout the life of your loan, too. For example, look for a company that has clear loan terms, a strong reputation and consistent customer service.
Here are some key questions to ask when looking for a personal loan lender:
- Have you heard of the lender before, and do they have a good reputation?
- Have you had a good experience with the lender before?
- How long has the lender been in the personal loan business?
- Is the lender a bank or a Fintech startup, and are you comfortable with their structure?
- Does this lender charge an origination fee?
- Does the lender offer 100% U.S.-based loan specialists available to speak over the phone?
Banks vs. Fintech Startups: What’s The Difference?
Not all lenders are the same. When choosing a personal loan lender, it’s important to understand if you’re entering into a banking relationship with an established bank or a Fintech startup. Why? For one, the method each lender uses to originate loans typically varies between traditional banks and Fintech startups. Determine with which you are most comfortable.
Online banks, such as Discover Personal Loans, employ a traditional lending model. They lend the funds to the consumer and take on the corresponding risk until the borrower has repaid the funds in full.
Fintech startups often use the Peer-to-Peer (P2P) lending model in which they act as an intermediary between investors and borrowers. Investors can include individuals and investment banks – people or entities looking to make a profit on the loans. The Fintech lender then charges an origination fee for originating the loan. The investors take on the risk until the borrower repays the funds in full.
Potential Red Flags:
When you decide to apply for a personal loan, a quick Google News search will tell you a lot about lenders. Is there any recent publicity, and is it positive or negative? Any reports related to ethical misdeeds? Or is there even much of a history at all?
Here are a few potential red flags to look out for:
- Recent bad publicity relating to personal loan practices
- Negative news stories about company executives and unethical business practices
- Poor online reviews related to customer service or rate misinformation
Ask questions and do your research.
If you have any questions about personal loans, feel free to call Discover Personal Loans: 1-866-248-1255.