The financial industry has changed a lot under the influence of technology. Today, this is a familiar procedure for us to use only cashless payments, both in business and in personal life, manage our finances through the application, pay bills or issue insurance policies online. And this is also true for the possibility of obtaining a loan – online lending platforms seem to be going to seriously compete with banking organizations. The banking industry has already strained after the invention of the blockchain, and today automated and AI-based online lending platforms are becoming more popular. In this article, we want to understand the advantages and disadvantages of these services for business.
To begin with, let’s make sure that you correctly understand how online landing services work. As an example, take a look at 45cash loan reviews. This system helps to quickly find someone who can borrow money from you, all the procedures are online, and you do not have to report on where you are going to spend the amount received. Let’s look at the additional positive aspects of this approach.
It is predicted that over the next four years, the online lending services market will grow up to 200%. But even now, you already have enormous opportunities to choose a platform that will be your intermediary for a quick loan. In the case of banks, your choice is limited only to those whose client you are, whose representative offices are in your city (not all banks are ready to accept applications for loans online), and which you consider being the most reliable.
If at least once you had the imprudence to ask for a loan from a bank, then you probably know how many documents you need to bring and how much bureaucratic red tape to endure. At the bank, you will have to tell absolutely everything about yourself, prove your solvency, invite guarantors, offer your property as collateral, make a huge down payment if you are applying for a mortgage or car loan.
In the case of online lending services, everything is maximally simplified. You fill out a short application form, which is processed automatically by AI systems. These technologies make decisions based on data and analyzing previous cases, and on this basis, they conclude how risky it is to give you credit.
Increased Likelihood of a Positive Decision
Since the decision is made by the system, the likelihood of a positive decision is also higher. According to statistics, only 56% of borrowers received a positive decision from the bank, while this figure rises to 75% when it comes to cooperation with online landing services.
Flexibility and Personalization
As a rule, banks offer standard loan packages to all customers. The only thing you can choose is the loan amount, and even this possibility is formal – you can likely get a minimum loan, even if you asked for more. Just because the bank made this decision.
In the case of online loans, everything works more flexibly here. Here you have the right to rely on a more individual approach and personalization of your transaction. In other words, you get the right to make the final decision on whether to take a loan or not and do not depend on the authoritarian decision of the bank.
Despite all the advantages, this system also has some disadvantages that you also need to take into account before making a final decision.
Higher Interest Rate
A higher interest rate is your payment for a greater likelihood of a positive decision, the absence of bureaucratic red tape and the need to report. Also, in this way, the online services themselves cover their risks. Since the likelihood of obtaining a loan is higher, then the risk of non-repayment is also higher. And for mathematics, this is a rational decision to partially cover their risks with a higher percentage.
The Almost Complete Absence of Legislative Regulation
Banks operate in strict legislative frameworks. But since online lending services are quite a new opportunity, it has not yet received proper legislative regulation, the norms of which would equally protect the rights and obligations of both parties to the transaction.
Therefore, keep in mind that at the moment on-line lenders set their own rules for working with clients, which are more similar to the general rules of doing business than to financial regulation. All that you will have in your hands is a contract, the terms of which may not be in your favor.
High Probability of Falling into a Debt Hole
As we have already said, online lenders are more compliant in making a positive decision. Banks in this regard are more thoughtful, consistent and careful. Therefore, in part, the ability to receive immediately a large amount is also a risk for you, since it is not always possible to give it back. With such a hasty decision, you run the risk of being in a debt hole, which, as we have said, is not regulated by anything other than a service agreement. Here it doesn’t work out to be refinanced, to agree on a lower interest, to break up the loan into parts or cover it with your property.
The Fragile Balance Between Automated Systems and the Human Factor
Decisions on granting or refusing a loan are made by AI systems that analyze data and self-learn. However, a situation where AI algorithms have not encountered cases that are similar to yours may also arise. And this problem could be solved with the participation of human employees, but in the case of AI, you will become just a precedent to make the same decisions in similar situations.
As you can see, the ability to get a quick loan online is a double-edged sword. On the one hand, this is speed, flexibility, lack of red tape with documents and a great chance of a positive outcome. But on the other hand, this is the lack of legislative regulation and the increased likelihood of regretting your decision if you thoughtlessly took too much.
As a middle ground, we recommend that you use this opportunity in extreme cases, as a temporary way to close holes in a personal or business budget. Plus, you must clearly understand what sources of financing you will use to repay the loan. And never borrow amounts that far exceed your net monthly income.