Online Loans vs Bank Loans - Which Is Better?
Online loans are known for fast access to funds, but speed isn’t always the most important factor. When comparing personal loans in New Zealand, it’s essential to look at interest rates, fees, and total loan costs. This guide compares online lenders with banks and answers common questions to help you choose the right option.
How Online Loans Changed Personal Lending in New Zealand
Online lending has evolved rapidly over the past two decades, changing how borrowers and lenders interact in New Zealand. Before digital applications became available, the process of applying for a personal loan was far more time-consuming and manual than it is today.
Before the year 2000, there was no such thing as an online loan. Both lenders and applicants found the process cumbersome and inefficient. Loan agreements had to be written out by hand, repayment amounts and APR were calculated manually, and even small mistakes meant starting the process again from scratch. Same day loans were unheard of, and it’s easy to understand why.
Murray Greig, Managing Director of LoanSmart, recalls those early days well. To assess a loan application, lenders needed to manually retrieve bank statements and payslips, while borrowers were often required to verify their identity in person. This made the entire process slow and inconvenient for everyone involved, with approvals often taking days rather than hours.
Murray was at the front of the alternative lending market, embracing new technologies to make lending more efficient and accessible for both lenders and borrowers. When online loans first became available, they were a game-changer. The application process became simpler and significantly faster than traditional methods, removing much of the paperwork and complexity that had previously slowed lending decisions.
“When online loans first became available, they were a game-changer for both borrowers and lenders. The process was simpler and quicker than traditional methods,” Murray explains. “It meant a lender could access all the information they needed to make a lending decision within a matter of minutes.”
By eliminating manual calculations and paper-based form filling, online lending platforms allowed personal loans to be assessed, approved, and paid out within hours rather than days. This shift fundamentally changed borrower expectations and helped shape the way personal lending works in New Zealand today.
How Do Online Loans Work?
Online loans work by allowing borrowers to apply, be assessed, and receive loan decisions through a digital process rather than in person.
Typically, a borrower completes an online application, provides identification, and shares financial information so the lender can assess affordability. The lender then reviews the application and offers suitable loan options. Once an option is accepted and documents are completed electronically, funds are paid out according to the lender’s timeframe.
How To Apply For An Online Loan
Applying for an online loan is a streamlined process designed to get funds to you as quickly as possible.To apply, you answer a few questions online, upload photo identification, and provide access to your bank statements. A consultant then contacts you to discuss your needs, assess your application, and present available loan options. Once you select an option, loan documents are emailed to you and the funds are deposited soon after. In many cases, a personal loan can be approved on the same day.
Is Fast Lending Responsible?
Yes – fast lending, including online loans, must still meet strict responsible lending requirements in New Zealand.
Under the Credit Contract Act, all lenders, whether banks or finance companies, must act responsibly. This means they have to show that the loan meets your needs and that you can afford the repayments without suffering substantial hardship — in other words, the loan must be affordable. Whether you get a loan from a bank or an online lender, you go through the same affordability assessment and are protected by the same consumer credit laws.
Is an online loan more expensive?
Not always. While banks are often assumed to offer the lowest rates, this is not necessarily the case. In some situations, online loans can be competitively priced depending on the lender and the borrower’s circumstances.
What Are The Benefits Of An Online Loan?
- Online Loans can work out cheaper
Personal loan interest rates in New Zealand typically range from single-digit rates for low-risk borrowers to higher rates for borrowers with more complex credit profiles. Online lenders often assess applications individually, which means some borrowers may receive pricing that compares favourably with bank loans once fees and total repayment costs are considered. - Interest rates are tailored to you
Banks commonly publish fixed personal loan rates with limited flexibility. Online lenders often take a closer look at factors such as income, expenses, and credit history, which can result in more personalised interest rates rather than a one-size-fits-all approach. - You could borrow a larger amount online
Banks typically offer up to $30,000 for unsecured loans, but online lenders like Loansmart can offer up to $75,000. That extra $45,000 can make all the difference if you’re renovating, buying a car or consolidating loans
Are Online Loans Legit?
Yes, online loans are legitimate in New Zealand when provided by reputable lenders that comply with consumer credit laws.
Online loans can raise questions because the process is faster and more digital, but borrowers in New Zealand are protected by the same responsible lending and affordability requirements that apply to banks.
Because online lenders differ in experience, cost, and service, it’s important to research who you borrow from. Established New Zealand-based lenders with a track record, transparent fees, and positive independent reviews are generally considered more reliable. Loansmart is an established company with hundreds of positive reviews from genuinely happy customers. They are based in New Zealand with an office in Auckland, and offer loans NZ Wide.
How to Choose the Right Online Lender
Choosing the right online lender comes down to total cost, transparency, reputation, and trust. Comparing APRs, avoiding high-cost lenders, checking reviews, and avoiding multiple applications can help protect your credit score.
1. Compare the total cost, not just the interest rate
When comparing online lenders, focus on the Annual Percentage Rate (APR), not the advertised interest rate alone. APR includes both interest and fees, giving a clearer picture of the true cost of a loan. Always compare lenders using the same loan amount and repayment period for a fair comparison.
2. Be cautious of high-cost lenders
Some lenders advertise very low daily interest rates that can translate into extremely high annual costs. In some cases, these rates can exceed 50% per year, meaning you may repay far more than you borrow. Lenders that do not clearly disclose their annual rates or fees should be approached with caution.
3. Look for social proof and reputation
Before applying, check what other borrowers are saying about the lender. Independent third-party review platforms, such as Google Business Profile, can provide insight into how lenders are rated for communication, helpfulness, solutions offered, and overall loan costs.
4. Consider safety and data security
Online loan applications require access to financial information to assess affordability. Secure lenders use protected systems to retrieve bank statement data without accessing your login details, helping keep personal information safe.
5. Avoid multiple loan applications
Applying for multiple loans can negatively affect your credit score. Repeated applications may make it appear that you are struggling financially. It’s best to narrow your options, assess suitability first, and apply only when you’re confident you meet the criteria.
FAQ
Online loans are not always more expensive, but the cost can vary depending on the lender, fees, and interest rates. In some cases, the speed and convenience of online loans may come with higher costs, so it’s important to compare options carefully
Applying for a loan online offers convenience, faster application times, and the ability to apply without visiting a branch. Online lenders may also assess applications individually rather than offering a single standard rate.
Because online loans are easy to apply for, applying for multiple loans can negatively affect your credit profile. Costs and terms can also vary between lenders, making comparison important before applying.
Before applying for a personal loan, compare interest rates, fees, repayment terms, and the total amount you’ll repay. Focus on the Annual Percentage Rate (APR), which includes both interest and fees and shows the true cost of the loan. To compare fairly, use the same loan amount and repayment period when assessing options from banks and online lenders.
