Financing with fast online loans has become commonplace over just a few decades. We should note that this is not a new phenomenon, as quick loans have been around in one form or another for many years.
It is a way of financing that can be useful but also has some important risks that you should be aware of.
What is a fast online loan?
Fast online loans are probably one of the most widespread and well-known forms of financing in recent years. It is a loan that can be processed online. That means that the whole process can be done remotely. You do not need to go to any office.
Generally, you will not need to submit documentation directly since the platforms themselves allow you to send the documentation online and analyze your credit score without having to leave your home.
All this makes for very fast transactions. Most of the lenders that operate in this way will tell you in just a few minutes if they will grant you the money or not.
Also, the crediting of the money in your account is very fast. Generally, once the loan is granted, in a maximum of 48 hours, you can have the funding in your account. Depending on the bank where you have your bank accounts or cards, you can receive this amount in almost any way.
The most important characteristics that define a quick loan are the following:
All processing can be done online (sometimes by phone).
- It finances low/medium amounts
- The repayment terms are short
- The interest rates are high
To give an idea, typical financing of these characteristics could be a loan of $1,000 with a repayment term of between 30 and 60 days.
What are quick loans used for?
They are an interesting financing tool, although they are not risk-free. Generally, those who use this type of loan are looking to solve an urgent cash flow problem. For example, to pay the cost of a breakdown, to deal with an unforeseen event, etc.
It is not a conventional form of financing. It is important to remember that the interests on this type of loan are usually much higher than those on personal or consumer loans. That means that if we misuse the financing, in the end, the cost is much higher than the market average.
Therefore, funding with a fast online loan should be intended exclusively for unforeseen events and low amounts of money. Anything that exceeds the average amount will be really expensive and, in some cases, really dangerous.
However, we must be realistic and remember that this product has specific speed and user service characteristics that conventional loans do not offer. In other words, it is a useful tool with market space, and, if used well, it can help to get out of a tight spot.
Where is the risk in quick loans?
There are different risk factors to consider about quick loans, but the main one is the risk of non-payment.
We must consider that an average user will resort to this type of loan only in case of need. Sometimes, an unforeseen event or a need for financing means that the amount of money needed is not well calculated. Or if it is, then it is required and can be repaid on time.
In addition to the high-interest rates, which we already know in advance because the platforms inform us about them, these loans generally have very high commissions and penalties for non-payment.
What happens in case of default is that, on the one hand, interest will continue to accrue and, on the other hand, will add penalties. Although not all loans apply the same default fees, it is usual for this to exist, and even more so for it to be really expensive.
In the end, getting into a credit debt spiral with penalties will probably lead you, in the best-case scenario, to a refinancing that will make the whole operation even more expensive.
So, to avoid this risk, the ideal is to know how much money you need and your ability to repay. If you are unsure you can repay the loan, you should look for a different alternative, as these credits can end up causing serious problems.