Is it safe to get an online loan: The pros and cons

Many Filipinos may find the need to take out a loan every now and then. But sometimes, the amount they need is relatively lower than the amount traditionally taken out for home or car loans. Some need to quickly borrow money in order to pay off a small debt, a utility bill when their paychecks are running late, or an emergency that throws off their budget.

This is where online loans come in. Convenient, fast, and legal, these loans have helped many Filipinos get through a small financial speedbump.

If you’re considering taking out an online loan, here is what you need to know about it as well as its pros and cons.

What are online loans?

Online loans are quick and convenient loans that can be availed online without having to go through a rigorous screening process. Unlike regular bank loans, you do not need collateral to secure your an online loan. It only requires minimal documents for identification purposes. These loans are approved quickly without the need to visit the lender’s office. The amount is transferred to your bank account right away.

Are online loans legit or safe?

The legitimacy of online loans in the Philippines can vary. While there are many reputable online lending platforms that operate within the legal framework and offer fair terms, it’s best to err on the side of caution and conduct thorough research before applying for a loan. Not all online lenders are created equal, and some may engage in deceptive practices or charge exorbitant interest rates.

Online loans can be safe, but it depends on the lender and how you protect yourself. To minimize risks, choose reputable lenders licensed by the SEC or BSP, be cautious of phishing scams, and protect your personal information. Carefully review the loan terms and conditions and report any suspicious activity to the authorities.

Advantages of online loans

Online loans offer several benefits that make them a convenient and accessible option for borrowers.

• Unsecured loans: You do not need to provide collateral property to secure a loan, which is convenient if you do not have a property or anything valuable to use as collateral.
  
• Flexible repayment: Many online loan apps offer flexible repayment plans to make it easier and more convenient for you to repay your loans.
  
• Growing credit limit: First-time borrowers will have a lower maximum loan amount, but as you continue paying your dues on time and consistently showcase your good money habits, these apps provide higher maximum loan amounts.
  

Disadvantages of online loans

While online loans offer many benefits, there are also some potential drawbacks that borrowers should be aware of.

• Higher interest rate: Because the loan is unsecured, the interest rate will be higher than traditional bank loans.
• Smaller maximum loan: If you’re a first-time borrower, you may find that your maximum limit may not be enough to cover your expenses as the maximum amount you can loan is much smaller than what traditional bank loans provide.
  
• Risk of hacking and scams: Be careful about the data you share and the online loan apps you use, as these can be prone to data hacking since the whole loan process is done online. To avoid online scams when applying for loans, make sure to read the fine print and double-check all the websites you’re applying on. Make sure you use online lending platforms registered with the Securities and Exchange Commission.
  

Online loan vs. bank loan

Bank loans are traditionally used for bigger items like purchasing a home, a new car, or something more immediate that can be covered by personal loans. This means that the approval process is stricter and requires more documents to ensure a person’s ability to pay a large amount.

Online loans, on the other hand, get approved around 24 hours and only require documents for identification. However, the amount that one can loan is less than what one could get if they apply for a loan in a bank.

There are different types of online loans available in the Philippine market. These include:

• OFW Loans: For Overseas Filipino Workers and their families that need a loan for a work contract
  
• Quick Cash Loans: Regular short-term cash loans to be repaid
  
• Salary Loans: Short-term loan that should be paid in full or in installments when you receive your next paycheck

Should you get an online loan?

It depends on the purpose of your loan. If this is a small loan that can be paid with your next paycheck and you don’t mind the higher interest rate, then getting a fast online loan may be the faster and more convenient solution.

If you’re looking for a significantly large loan to buy a home, vehicle, or an expensive gadget that you can use for a side hustle, your only option would be to consider a traditional bank loan. It is not a quick process. When you’re dealing with long-term loans with smaller interest rates and higher maximum loan amounts, bank loans are the more practical solution. Regardless of the option you choose, it’s important to manage your finances carefully to ensure you can pay back the obligations associated with these loans.