You can borrow money in many ways. One of them is to borrow money in the bank, while another is to find a loan online. There are both advantages and disadvantages to both types of loans, which is why you have to settle for yourself whether you prefer one or the other type of loan. There is nothing right or wrong – it is a personal assessment.
Advantages and Disadvantages of Online Loans
- It is a short loan process. You can typically have money in your bank account on the same day – or at the latest within 24 hours. If you have to spend money here and now, that’s a significant factor.
- There are no requirements that you have to provide collateral for the loan. This means you can borrow money even if you do not own anything of high value. It is an advantage if you do not have assets that can be secured.
- You have no obligation to explain what the money is going to be used for. You can therefore use the borrowed money that you want. It can be anything from renovating your kitchen to a new TV for the bedroom.
- You have to pay a high interest rate, fees and thus there are many costs associated with an online loan. Ultimately, this means you get a high APR (Annual Cost Percentage) on the given loan.
- Due to the fact that this is a fast process, there is no thorough assessment of your finances and income. This can mean you risk taking out a loan that you really cannot afford.
- You do not get the opportunity to get guidance or feedback from a counselor. On the contrary, you have full responsibility for the loan yourself. This makes it difficult and time-consuming to find the right loan.
Advantages and Disadvantages of Bank Loans
- Most often you get a significantly lower interest rate on bank loans than on an online loan. In addition, bank loans also have a lower APR, making the loan cheaper for you when all costs have been recognized.
- Prior to the loan, your finances will be assessed by a bank advisor. It helps ensure that you have a clear insight into your finances, how much you can afford to borrow and that you do not borrow over ability.
- You get professional guidance from your bank advisor so that you can – jointly – find the most optimal loan solution for you.
- There are very high requirements for the borrowers in the banks. This includes, among other things, that you can provide something as collateral for the loan. It can make it difficult to borrow money if you do not own larger assets.
- You must explain to the bank advisor what the loan is to be used for. It is often a requirement that you use the loan for a specific purpose. This could be, for example, the purchase of a new car or home improvements.
- It can be a long process as there are many steps you need to go through before you can get paid out. It is a major disadvantage if you are missing money here and now.