A better understanding of Online Lenders

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For many years now consumers have been using online lenders in order to obtain loans. There are a number of resources which are available and can be accessed entirely by way of an online application process. The facility to borrow in this manner has been used by a vast number of consumers in the past decade and as a result many are aware of the services which can be gained. That said it is important to understand exactly what the current market of online lenders offer and what exactly this means for consumers.

In the early days of the online lending market the product offered by lenders was very different to the current product proposition. The product was based on the principle that, if approved, a lump sum repayment was made on the applicants next employment pay date to repay the account. This meant that typically lenders only offered a repayment period up to 31 days. On the agreed pay date the customer would repay the amount which had been borrowed and in addition the interest which was applicable for borrowing from the lender. At the time lenders tended to apply interest relative to the total sum borrowed and not as a specific reference to the period of time the loan was active. This meant a standard rate of interest was applicable for each loan sum regardless of whether the customer borrowed 10 days away from their pay date or 20 days.

For consumers who did not have the means to repay the lump sum on the selected due date there was an alternative commonly known as extensions offered by lenders. An extension allowed the customer to delay the repayment in full of their agreement by paying the interest currently applicable on the account. By making the interest payment the customer could then extend the repayment in full until their subsequent employment pay date. The loan agreement in its entirety was satisfied only when the full repayment was made, an extension did not reduce the amount owed.

Online lenders now offer another lending solution, either in replacement of or as well as a lump sum repayment loan. The updated product offering is based on the customer making a number of instalments to repay the amount borrowed. Instead of asking that the customer commit to making a one-off repayment to clear the loan, then take the option to extend should they later believe they need to, online lenders now offer a more flexible product. Many offer the applicant the opportunity to select from a number of choices when submitting the application. The number of monthly terms offered will vary from lender to lender but typically ranges between 3 months to a year. The interest on these type of loans is often applied daily relative to the period of time the loan has been activate and the amount of capital which is left to repay. This means the total amount repayable is directly reflective of the loan taken. In instances where the shorter repayment terms are selected, the lesser amount of interest will be repaid in total by the customer.

Therefore as the above touches on the market for online lenders is growing and the products being offered becoming more varied and focused on meeting the variety of consumer needs. In order to understand exactly what an individual website offers it is advisable to take the time to read all of the product information provided. This is often found in a section called ‘How it Works’ or ‘What we Offer’. This information can provide exact details relating to the loan size offered and term of repayment proposed.



By Kieran Moulden