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Can an online lender help solve your money troubles?

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By Andrew Housser

While non-revolving debt (debt for items such as vehicles and education, as well as unsecured installment loans) has recently outpaced the growth of revolving debt (primarily credit cards), revolving debt is still growing each month in the United States. Overall outstanding debt has hit a new high each of the past 53 consecutive months.

To help repay credit card or other debt, greater numbers of people are turning to personal loans these days. In fact, the number of people who have personal loans has increased by 18 percent in the past two years, according to TransUnion.

If you are thinking about borrowing money, perhaps from an online lender, ask yourself these eight questions first.

1. Do you need money quickly? A bank loan can take weeks to be approved and receive the funds. Online personal lenders, on the other hand, have developed systems that allow them to review and approve borrowers quickly. Not everyone will qualify, but those who do can receive funds in as few as 48 hours. Some online lenders will send money directly to credit card companies on your behalf if you are borrowing to consolidate credit card debt.

2. Are you seeking to consolidate debt? If you are tired of juggling multiple credit card payments and dates, and you are ready to pay off your debt, an online lender might be a good solution. Interest rates are generally lower than credit card issuers’ rates. A few online lenders, like FreedomPlus, may offer a discounted interest rate if you use the loan proceeds to repay credit card lenders directly.  

3. Have you asked about fees? Be sure to compare lenders’ fees. Understand the origination fee, and the impact it has on Annual Percentage Rate (APR). For instance, a $10,000 five-year loan with a 12 percent interest rate will have an effective APR of more than 14 percent if there is a 5 percent origination fee. Ask about any prepayment penalty – there should be none. After all, if you suddenly get a raise at work and are able to pay the loan early, you do not want to be penalized. Ask about origination fees, late fees and other potential charges.

4. Do you have a credit score of at least 650? Most online personal lenders have a credit score minimum of around 650. This is close to the average credit score for U.S. residents, so people can qualify even without a stellar credit record. It’s possible to check credit scores through many banks, credit unions and credit card providers. Also, everyone can receive their credit reports once each year from www.AnnualCreditReport.com or by calling 877-322-8228. The credit reports usually do not include credit scores, but they show the credit usage history that goes into each agency’s score. Review the reports carefully for accuracy. If you spot errors, follow the directions on each credit agency’s website to correct them.

5. Do you have a co-borrower? If your credit score is less than stellar, you may still be able to qualify if you have a co-borrower who has a stronger credit history. In fact, some companies will reward the pair of you with a lower rate than you might get alone.

6. Have you filed for bankruptcy? Personal lenders are lending you money, and they want to have reasonable assurance that you will repay the loan. Many online lenders believe it is too risky to lend to people who have filed bankruptcy within the past two years. If this is the case for you, you may need to find another way to resolve your debt or other financial problems.

7. Are you considering going to a payday lender (either online or brick-and-mortar)? In a word – don’t! A payday loan that might sound affordable – charging $15 for a two-week loan of $100 – isn’t. The interest on a one-month payday loan of $300 would be $90. Even worse, many people “roll over” their loans, borrowing the loan again, rather than repaying it. Over time, some people wind up giving more than half their incomes to payday lenders because they cannot keep up with the interest fees. If you can quality, a personal loan offers a much better choice, with significantly lower interest rates. Online personal lenders also allow people to borrow a larger amount for a needed purpose (usually up to $35,000), and take up to five years to repay it. So someone borrowing $10,000 at a 14 percent APR for five years, for example, would pay less than $235 per month.

8. Do you have a plan for getting out of debt? A loan from a personal lender can help if you are managing multiple payments or juggling credit cards. But be sure you are not borrowing money to pay off credit cards, only to accumulate more debt elsewhere. If you are worried that you still will not be able to make minimum payments, or if you know other debt is mounting – such as unpaid medical bills – consider seeking other types of debt help. A reputable debt relief company can help evaluate options.

If you are ready to get your debt under control, or need some extra funds for a home improvement project or other need, consider getting in touch with an online personal lender. These companies are providing one more way to make it easier to manage your money.

Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.
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