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Getting a loan online vs. going to the bank: Which is the best option when applying for a Personal Loan?

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Have you ever needed a personal loan, but didn’t want to go through the hassle of applying through a bank?

Online loans are for people who need funds as soon as possible. But is this the right choice if your priority is finding high-quality finance at competitive rates? Online loans are fast, but how do they compare by way of interest rates and fees? Let’s look at the differences between banks and online lenders, and answer the most common questions people have about loans in NZ. Keep reading to discover which option may be right for you if you’re looking for a personal loan.

What Is An Online Loan?

Before the year 2000 there was no such thing as an online loan. Both lenders and applicants found the process cumbersome. Murray Greig, Managing Director of Loansmart recalls those days well “You needed to write the loan agreement out by hand, work out the repayments and APR manually, and if you made a mistake you had to start from scratch. Same day loans were unheard of, and it’s no wonder why. You also needed to manually retrieve bank statements, pay slips and verify identity in person”.

Murray was at the front of the alternative lending market, embracing new technologies to make it more efficient and easy, for both lender and borrower. “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. It meant a lender had access to all the information they needed to make a lending decision within a matter of minutes. By also eliminating manual calculations and form filling, loans could be approved and paid out within hours”.

How To Apply For An Online Loan

Nowadays, everything is geared toward making the loan process as fast as possible. Answer a few questions online, upload a photo ID, and provide access to your bank statements. Next, a consultant will call to introduce themselves and discuss your needs. Then they’ll assess your application and give you options. Tell your consultant which one you prefer, and loan documents are emailed to you. You’re deposited with the funds soon after. Since the process is so finely tuned, a personal loan can be approved on the same day. But is fast lending responsible? Does speed come at a cost?

Is Fast Lending Responsible?

Under the Credit Contract Act, all lenders, whether banks or finance companies, must act responsibly.

This means they have to prove that the loan meets your needs and you can afford the repayments without suffering substantial hardship – in other words, it needs to be affordable. Whether you get a loan from a bank or a finance company, you’ll still go through the same affordability test and fall under the same laws designed to protect borrowers.

What Are The Benefits Of An Online Loan?

Is an online loan more expensive?

An online loan is an alternative to traditional bank lending. Many people think that banks offer the best rates on personal loans, but that isn’t necessarily the case. In some cases, the opposite is true.

  1. Online Loans can work out cheaper
    A website review of personal loan rates from New Zealand’s largest banks found rates ranging from 13.90% to 18.95% for three banks and a special limited-time rate of 10.95% from one other bank, which ends on June 24.
  2. Interest rates are tailored to you
    Why does this matter? You can find the personal loan rates offered by banks online. It’s pretty much a one-size-fits-all approach, even if some offer lower rates for students and homeowners. So if you’ve got a good credit score, and good discretionary income, you might end up paying more through a bank.
  3. 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?

So, if online loans are faster, easier and sometimes cheaper than bank loans, there must be a catch, right? The types of questions that people typically ask about online loans include “are online loans safe”, “do online loans work”, and “are online loans legit”.

Because online lenders vary so much, you have to do your homework before choosing a loan company. There are many reputable online lenders, like Loansmart that have been in business for almost 15 years. 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. Yes, online loans are legitimate, but the service you receive will depend on who you choose. Murray Greig, Managing Director of Loansmart, provided the following tips to consider before submitting an online application for a personal loan.

Check the fees

There is a difference between Interest Rates and Annual Percentage Rates (APR). Annual percentage rates take into account fees as well as interest, so they provide a true reflection of loan costs. Compare loan repayments over the same period, and with the same loan amount for a like-for-like comparison. Make sure you’re looking at the annual interest rate, not the daily interest rate, as many lenders advertise the daily rate instead. If a loan company advertises a daily rate, it could indicate a very high annual rate.

Make Sure The Lender Is Low Cost

Some lenders, notably payday lenders, advertise daily interest rates, which appear really low, but can be higher than 50% per annum. You could end up paying double the amount you borrow through a payday lender. Lenders who do not show their interest rates are likely to be high-cost lenders, which brings me to my next point.

Look For Social Proof

Be careful when applying for loans online because each time you do, your credit score can suffer. You may be viewed as living beyond your means when you apply for multiple loans. You want to work with a company that is fair, affordable, and highly regarded.

Consider social proof when looking for companies who offer personal finance solutions, including independent third party review sites like GMB (now Google Business Profile).

A declined application will also hurt your credit score, so it’s best if there’s a good chance they’ll say yes. Look for social proof – what are other people saying about them? You can learn a lot about Loan Companies by checking out independent third-party websites. Take time to read comments – how are they rated for helpfulness, communication, solutions, interest rates, and loan costs?

Get on the phone and see what solutions they can provide before you apply. Apply if you’re comfortable with their current interest rates, loan terms, and are fairly confident you’ll be accepted (pending a credit check and review of your bank statements).

Are online loans safe?

This is an important question to ask. We asked Murray Greig what Loansmart does to keep its customers’ information safe.

“To assess your ability to service your loan, we need to view your bank statements. This enables us to see your income against your expenses. We send you a link that authorizes us to view your statements online. Information is stored securely and bank statement data is securely retrieved without us having access to your login details ”.

Personal loans have come a long way in the last couple of decades. Borrowers today have many options, and getting a loan online might be a better option than going to a bank. Ultimately, it depends on how much the loan will cost. Banks can be perceived as being cheaper than online lenders, but comparing fees and interest rates shows that’s not always the case. In the end, it’s important to pick a lender that has been in business for many years and is trusted and proven.


Online loans can be used for almost any purpose, such as personal loans or business loans. Loansmart bad credit loans are available for people with lower credit scores. Debt consolidation loans can be used to consolidate loans, credit cards and bills. A short-term loan can also be used if you need a small cash loan for a short period of time. If you want to borrow more money, you should look into a longer-term loan with a minimum loan period of six months.

There are two categories of online lending providers: high-cost lenders, those that charge more than 50% in interest per year, and low-cost lenders, those that charge less. When short-term loans are taken out through high-cost lenders, such as payday lenders, their interest rates tend to be higher.

Low-cost lenders normally require a minimum loan period of 6 months and offer rates as low as 8.95%.

  1. Ask yourself what you need the loan for first. A debt consolidation loan may be the best option for paying off existing loans. Applying for a low cost bad credit loan may be the best option if you have bad credit and need a loan. You can apply for a shorter loan repayment option if you only need a few thousand dollars.
  2. Then, check the fees and interest rates of loan providers. The Annual Percentage Rage (APR) takes into account both fees and interest rates, to give you the true cost of your loan. Naturally, you want to apply to whoever has the lowest APR. Check the rate and fees of banks versus online loan providers. Compare loan repayments over the same period, and with the same loan amount for a like-for-like comparison between loan providers.

Online loans are fast and easy to apply for. Often the rates are tailored to the individual, so they can be lower than banks in some circumstances. Banks tend to offer one rate to all borrowers, which can be considerably higher than the starting interest rate of online lenders.

The problem with online loans is that they are easy to apply for. Applying for too many loans can negatively impact your credit score. Pick a provider that offers lower interest rates and fees, and has a good reputation.

One thing to consider when looking for the right loan is how much you’ll have paid back by its end. The Annual Percentage Rate (APR) takes into account both fees and interest rates, to give you the true cost of your loan. Compare rates and fees between banks and online lenders. For a like-for-like comparison, compare loan repayments over the same period and with the same loan amount.