The online personal loan isn’t a new product, but it has certainly changed. Lenders now offer many options to meet the needs of Canadians. Plus, they are now preferred over credit cards for many reasons.
Canadians Prefer Loans Over Credit Cards
Equifax, one of Canada’s two credit reporting agencies, released a study showing consumer credit behaviours have changed significantly since COVID-19. Canadians now prefer personal loans over credit cards.
A Statistics Canada publication suggests the drop in credit cards and unsecured lines of credit use is due to several reasons. First, personal loans are a good choice for refinancing or consolidating debt. Second, a personal loan can potentially reduce interest costs and overall indebtedness.
No Compound Interest
One of the reasons to shift away from credit cards is because they do not offer repayment flexibility. Basically, you must pay off your outstanding balance as quickly as possible. Otherwise, interest compounds on the outstanding balance.
Compound interest continually increases how much you owe. Even if you make substantial, regular payments, you’ll still pay interest unless you pay off the balance. If they increase the rate on your card, you’ll pay even more interest.
An online personal loan works differently. You borrow a set amount and cannot add to the balance. However, every payment you make pays a portion towards the outstanding balance and a portion towards interest.
Interest does not accumulate on the unpaid balance. Your payments and interest rate remain fixed throughout the loan term. Plus, you know precisely when you’ll be debt-free when you make your scheduled payments.
More Repayment Options
Generally, a credit card or unsecured line of credit demands a monthly payment. The lender establishes the due date and you must squeeze your finances into their requirement.
However, today’s online personal loan offers many payment options. Pay weekly, bi-weekly, bi-monthly, or monthly, if it suits your needs.
Decide whether you want to pay your loan off quickly or spread it out for more affordable payments. A good lender offers a wide range of repayment terms from six months to at least five years.
Additionally, you should have a broad range of choices when you decide how much you want to borrow. Some lenders won’t issue an online personal loan for under $1,000. Others won’t grant them for more than $5,000. A good lender should offer loans from $500 to $15,000.
Credit May Play a Lesser Role
The personal loan market has been dominated by the major banks for years. However, not everyone can borrow from them and their products don’t work for everyone.
As a result, the non-traditional online personal loan market emerged. It is particularly appealing to those that have less than pristine credit. Lenders look at many factors, not just the applicant’s credit file. Plus, they don’t have a minimum credit score requirement.
Other reasons applicants may look beyond the big banks are when they can’t qualify because they:
- Are self-employed
- Earn income from a pension
- Changed job within the last few years
- Moved within the last few years
- Switched banks within the last few years
- Don’t meet the minimum income requirement
Shorter Stability Requirements
We mentioned that mainstream lenders can turn down an application if you’ve changed jobs, moved, or switched banks in recent years. Luckily, the online personal loan market is much more forgiving.
Some lenders consider applications if you can show you’ve been working with the same employer for at least three months. Banks may want to see at least a year, or even longer.
The same goes for your permanent address and your financial institution. Three months is often sufficient.
Electronic Income Verification
A significant change in the online personal loan market is electronic income verification. Applicants don’t need to take time out of their busy day to dig up pay stubs. They don’t need to ask their employer or accountant for income confirmation either.
Instead, lenders ask permission to verify your regular pay through your bank. They can’t delve into your personal affairs. It is just a matter of confirming you earn the amount you mentioned on your application form.
Obviously, this is a huge improvement over an in-person application. Everything’s handled quickly and efficiently, without setting foot inside an office or bank branch.
Lower Salary Requirement
Today, the online personal loan fills a huge gap in the lending market that mainstream lenders don’t fill. For instance, you can often qualify for an online personal loan if you don’t earn a big salary.
A good lender may ask for as little as $2,000 per month, but they don’t base their decision on your salary alone. Instead, they’ll evaluate your entire financial profile.
Fewer Fees & Penalties
Once, some fees and penalties associated with online personal loans were often charged to consumers unnecessarily. However, consumers are more savvy today and now there’s absolutely no reason to pay them.
Nonetheless, many lenders still try to charge an origination fee just for setting up your account. This isn’t a paltry amount either. The cost ranges between .05% and 8.0% of the loan amount. This fee comes off your loan funds which reduces how much you receive.
Others penalize you if you want to make extra payments or pay off your loan early. Once again, there’s no reason to pay prepayment penalties today. Good lenders don’t charge them.
Faster Than Ever
Undoubtedly, one of the greatest advantages of an online personal loan is speed. Today’s technology is faster and safer than ever.
Lenders have perfected the online process. Good ones review your application quickly and give you their decision within minutes. If you’re approved, it is just a matter of accepting the terms and signing your loan documents electronically. You should have money in your bank account within 24 hours.
Legal oversight over the online personal loan market has improved. Licensed lenders must follow regional laws which limit interest rates, fees, and penalties. They must also clearly reveal these to the borrower in their loan documents.
However, unlicensed lenders do exist. They may bypass consumer protections putting borrowers at risk. If the lender doesn’t state their licensed, borrowers should look elsewhere.
Improved Customer Service
Online financial institutions are eager to lend you money. It’s their business. However, some online companies have a bad reputation, because they conveniently disappear behind an email address when you need them.
Fortunately, good lenders now offer multiple customer service options. You can call a toll-free number, email, or get website support.
Big Banks Still Don’t Get It
Regrettably, the big banks still don’t get it when it comes to the online personal loan. Some provide a semi-online process, but you may still need to visit them in-person to provide documents and sign papers.
Others simply provide a telephone number and suggest you talk to a credit specialist. Either that, or they say visit a branch.
Of course, if a lender doesn’t conduct the entire process online, it’s really not an online personal loan. However, you can find non-traditional lenders that offer a truly online personal loan, from start to finish.
An Online Personal Loan Through FlexMoney
FlexMoney is a great example of a company that has evolved within the online personal loan market in Canada. Here’s what we have to offer:
- 100% Canadian – our customer service representatives live and work here
- 100% online – complete our online application form in less than 15-minutes
- Quick decision – FlexMoney won’t waste your time – you’ll know whether you’re pre-approved and what we’re offering within minutes
- Licensed lender – licensed to lender in Ontario, British Columbia, Alberta, New Brunswick, Nova Scotia, and Newfoundland – we’ve served Canadians since 2012
- Wide loan range – borrow between $500 and $15,000
- Less emphasis on credit – we use an artificial intelligence assessment to give us an idea of where you are in life
- Multiple payment options
- Terms between 6 months and 5 years
- No origination fee or prepayment penalties
- Fast funds release – money in your bank account within 24 hours
- Toll-free number, website, and email support
FlexMoney wants you to understand what we expect from you. Here are our criteria for our online personal loan:
- Canadian citizen
- At least 20 years of age
- Valid email address and mobile phone number
- Open and active Canadian bank account with at least three months of transactions
- Earn a net income of $2,000, or more, each month, and have earned this for at least the last three months. We will consider income from self-employment and pensions.
Sorry, we’re unable to help if you are:
- Involved in an active bankruptcy, consumer proposal, or credit counselling program.
- Earn income through Employment Insurance, the Disability Tax Credit, or COVID-19 benefits.
Find Out More
If you’re interested in starting the application process for an online personal loan, or if you have more questions, please visit our website. We’ve changed with the times and offer loans for people just like you.