Online auto loans are usually a better alternative to traditional car loans and dealership financing. Online lenders are typically quick, efficient, and often do not impose stringent requirements on borrowers.
Online car loans may also come with lower interest rates than traditional loans. However, nothing in the financial world is ever all good. There are some drawbacks of dealing with an online lender too. They may sometimes tend to take advantage of your bad credit or may press you for longer repayment terms.
A few online auto lenders could be simply bad credit shops with a questionable way of doing business. We have listed below the various advantages, disadvantages, and tips to help you get the most from an online auto loan.
Advantages of Car Loans Online
The pros of dealing with online lenders range from convenience to lower interest rates.
Zero Guesswork with a car loan company that is online
You can have your loans pre-approved before you walk into a dealership. You do not need to speculate regarding loan amount and buy rate. Dealers do not necessarily get the best buy rate. They add their own administrative charges to quote an inflated rate.
Online Car Loan Applications from home
Big-name financial lenders are convenient alternatives to dealing with your bank for a loan. These firms are reputable and make it easier for you to get a car loan.
Auto Loan Calculators before getting an loan
It is easier to compare various loans with the help of an auto loan calculator. You will automatically come across this calculator while shopping for loans online. It also gives the option to determine various factors of your loan.
Easy Comparison and fast application with instant approvals
It is easier to shop for loans online because you get to compare monthly premiums, interest rates and other loan terms at one place of various online loan companies. This is faster and easier than visiting every traditional bank in person.
Get approved with Lower Interest Rates
Online lending is a relatively untapped field. It has started gaining popularity in recent years, but the market is still dominated by traditional lenders. To attract more customers, online lenders tend to keep their interest rates and monthly repayments competitive and on the lower side. This also applies to refinances.
Credit Check or Bad Credit
There are fewer requirements with online lending companies. Some online lenders focus solely on individuals with bad credit by offering loan products at feasible interest rates.
Disadvantages of Online Auto Lenders
There are some potential drawbacks of dealing with online lenders. These are:
Online lenders are different to traditional lenders
You could be dealing with an unfamiliar credit union, bank or financial institution. You need to conduct a thorough research to establish reputability of a lending company before dealing with them.
Approvals may contain hidden fees
There could be hidden charges you are unaware of while seeking an online loan. You need to be aware of all additional fee associated with the online loan.
You also need to find out whether the fee is part of the principal loan amount or not. You do not want to pay inflated interest on additional fee and charges for the life of your loan.
Bad Credit Loans still need to make payments
Newer or smaller loan companies are always at a risk of going out of business. This could lead to your loan being sold to collectors. You should only deal with established and reputable online auto loan lenders.
Limited face to face when applying for a car loan online
Online loan companies do not usually have a physical location where you can sit and speak to a representative face-to-face. However, some companies have the feature of customer representatives to answer your queries on phone.
Major Players for online car loans
Here are some popular online auto loan services:
They have an extensive and helpful FAQ section, plus, a handy interest rate estimator.
This is primarily a car buying service that also provides a portal to get the best auto loans. It has one of the most customer friendly information including trade in value calculator and loan calculator.
LendingTree Auto Loans
This could be useful platform for you, if you have a fairly good credit. You would generally require a credit score of 670 and above to apply here.
How to Choose an Online Lender?
You need to consider these factors before choosing an online lender to get the best deal.
Interest rates for online loans
You need to consider your credit score while applying for online loans. In case of a poor credit rating, you should apply to lending companies that advertise to bad credit holders.
You can always get a better interest rate on refinancing if you make consistent and on-time payments. Your credit score can increase this way.
Loans with our without a credit check
Some online lenders conduct a soft pull on your credit score to pre-qualify you for a loan. While this might not guarantee a loan approval, you will at least get a ballpark interest rate figure. Your credit score takes a hit when lenders perform a full credit check.
It is best to make all applications within a short window period while rate shopping. Credit reporting agencies tend to consider it as a single inquiry when multiple hard inquiries are made within a short period of time – 14, 30, or 45 days.
Calculating payments and loan terms
The duration of your loan plays an important role in determining the overall costing. A longer term essentially means more interest amount which inflates the monthly payments.
A shorter duration might increase the premium amounts, however, will lower the end cost as interest is calculated on compound basis. Some lenders only offer loans for 48 months and 84 months. It is best to pay off a long quickly because cars tend to depreciate rapidly.
Applying and getting approved online
Some online lenders have an automated process to scrutinize your application and provide a quote in very little time. Others might require additional documents such as driver’s license to begin processing your application. Pick a lender that has a quick turnaround and makes things easier for you.
The Bottom Line
Online lenders can provide salient opportunities by way of faster loan processing and lower interest rates. You can apply for a loan online even with a poor credit or no credit score.
You could be well on your way to financing your next set of wheels with just a few clicks online. However, it is important that you always window shop and compare the rates and other terms and conditions between different lenders.