Debt consolidation is undeniably a smart and strategic move when you are dealing with several high interest debts. It makes sense because consolidating all your other debts into a single and more manageable payment won’t just be more convenient, in fact, it’ll also help you save more money on the interest. However, if it’s your first time applying for a personalized debt consolidation loan, you might be confused where to turn to, online lenders or traditional banks?
Online lenders and traditional banks offer almost the same products but when it comes to their speed, eligibility criteria, interest rates and loan terms, they differ from one another dramatically. Today, we’ll provide you a detailed comparison between bank debt consolidation options and online lenders, how they stack up against one another. Stick along to make a better and a financially informed decision.
Funding And Approval Speed
Traditional Banks
Banks often take a little longer when it comes to approving your applications and transferring your funds. From manual reviews to in person appointments and verification of your documents, it’s a long process and the entire approval and funding process can take weeks and sometimes months. If you want quicker approval, try exploring credit unions vs banks.
Online Lenders
Opting for online lenders for a debt consolidation loan is a great choice especially if you want faster approvals and funding. In fact, online lenders are known for quicker funding. Some even offer same-day or next day approvals. They process your applications quickly as they use automated algorithms to assess your creditworthiness so it doesn’t require much time.
*If you want faster access to your funds, online lenders are the right pick for you.
Application Process And Convenience
Traditional Banks
Banks rely heavily on formal procedures when approving consolidation loans. Not only do they require you to visit them again and again, in fact, you’ll have to provide your physical documents as well and you’ll have to go through interviews with loan officers. In a nutshell, the entire process can feel a lot more overwhelming and rigid.
Online Lenders
When it comes to online lenders, applying for a loan is quite simple and easy and you can do it through your phone or computer. You don’t need to visit any branch and some lenders even offer the facility of electronic documents and e-signatures so there’s less paperwork required here.
*When it comes to convenience and the application process, online lenders are unmatched. If you have limited access to bank branches or don’t have time to visit and provide documents in person then try online lenders.
Approval Criteria And Eligibility
Traditional Banks
Banks have strict eligibility and approval criteria. They only cater to those customers who have a long standing relationship with the bank, have an excellent credit score and a low DTI (High interest debt). For someone with a blemished credit score and payment history, getting a loan approved from a traditional bank is really difficult.
Online Lenders
Online lenders are more flexible when it comes to approving consolidation loans. They look beyond credit scores and payment histories. For them your employment and your income trends matter more which makes it easier for people with poor credit scores to secure a loan.
*If you have a less than perfect credit profile then turning towards online lenders is the wiser decision.
Fees And Interest Rates
Traditional Banks
If you are a qualified borrower, a traditional bank will offer you lower interest loans with no hidden fees. Especially if you have a good relationship with the bank, you can expect to get some great deals and discounts on your loan package.
Online Lenders
The one downside of opting for online lenders is that they offer high interest loans especially to people with poor credit scores. Not just this but they might as well charge you origination fees and prepayment penalties which can increase the overall cost of your loan.
*If you qualify for the best rates, traditional banks can be a more cost-effective option for you.
Repayment Terms And Flexibility
Traditional Banks
With traditional banks, you can easily customize your repayment schedule. Not only do they offer longer loan terms but you’ll also be able to get lower monthly payments. In case you aren’t able to repay your loan, banks do offer hardship programs to make it easier for you.
Online Lenders
With online lenders, you shouldn’t expect much flexibility especially when it comes to the repayment terms. Their loan terms are shorter which increases your monthly obligations and their terms are fixed.
*If you require some breathing room in your monthly budget then it’s best to opt for traditional banks for your consolidation loan.
Customer Support And Personalization
Traditional Banks
For a more personalized service, there’s no better option than traditional banks. In case of any query or trouble, you can directly speak with your loan officer and build a strong relationship. This will be beneficial for you in the longer run and you might as well get access to special discounts and terms.
Online Lenders
Online lenders are less flexible when it comes to their customer support and personalization. They use a digital first approach which means that you can only contact them via chat or email. If you want to speak to a human representative, the odds are really less and you won’t be able to get much support either, especially during a financial hardship.
*For in-person consultation and better customer support, opt for traditional banks.
Trust And Transparency
Traditional Banks
With an established bank you won’t have to worry about any misleading terms or hidden fees etc. They are more transparent with their customers and are heavily regulated.
Online Lenders
Online lenders lack trustworthiness and if you end up with a shady lender, you’ll have to face hidden fees and aggressive collection tactics as well. It’s important to choose your lender after research, read reviews, read the fine print and ensure that the particular lender is properly regulated.
*If you want more trust and regulatory protection then there’s no other option better than traditional banks for your consolidation loan.
When To Choose A Traditional Bank?
- When you have an excellent credit score
- When you have a good and long standing relationship with your bank
- When you need lower interest rates and better customer support
- When you require in-person service with more trust and regulation
When To Choose An Online Lender?
- When you are struggling to secure a loan with poor credit scores
- When you want quicker approvals and funding
- When you require a more digital first experience
- When you don’t want to go through longer and stricter application processes.
Final Word
It’s a fact that online lenders are taking the lead when it comes to faster approvals and flexible loan terms for debt consolidation loans. However that flexibility comes with a few trade offs including higher interest rates, less transparency, stricter collection tactics and lesser personalization. On the other hand, with traditional banks you do go through a strict and rigid application process but at least there’s trust, more personalization and complete transparency.
There are alternatives to bank loans if it’s not working right for you. It’s just that the right choice depends on your eligibility and your financial picture as well. If you have a poor credit score, securing a consolidation loan through a bank can be a tough call. But if you have an excellent credit score and a low DTI then yes, banks are just the right pick for you.
FAQs
Q1. Are Online Lenders Safe For Getting A Debt Consolidation Loan?
Yes, online lenders are safe if you want a consolidation loan but there are some scammers out there as well so you have to do your due diligence. It’s of utmost importance to first verify the legitimacy of your online lender. Ensure that they are registered and have a license to operate, have great customer reviews and a solid online presence.
Q2. Is A Good Credit Score Important To Secure An Online Debt Consolidation Loan?
No, it’s not necessary to have a good credit score to secure a consolidation loan online. In fact, some lenders specialize in poor credit loans so you can try your luck. It’s just that with a good credit score, you can secure a loan with low interest rates.
Q3. Are Online Lenders More Expensive Than Traditional Banks?
Yes, they can be especially if you don’t have a fair credit score. With a poor or below average score, you’ll qualify for a loan but with higher APRs. On the other hand, banks offer better rates but only to those customers who have a maintained credit history and an excellent credit score.
If you want to look beyond banks and online lenders for a debt consolidation loan then why not try a more personalized consolidation plan from Mountains Debt Relief? Try now to secure your financial future.