Our Guide to the Rise of Online Loans

Flexy Loans Guide to the rise of online loans
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The Internet has changed the way in which the UK financial services industry operates. We now take for granted the opportunity to browse for online loans 24 hours a day, seven days a week in the privacy of our own home.

There are also phone apps available today, which will allow you to apply for instant money which can often be in your account within 15 minutes of approval.

The key to any online loan application, some of which require confirmation and additional paperwork, is the credit reports available on all individuals.

These will cast a light on the finances of those looking for various types of online loans and allow lenders to give them an immediate answer.

The online loan market tends to be dominated by quick/fast loans often referred to as:-

  • Instantly money loans
  • Cash today loans
  • Quick payout loans
  • Decision today loans

There are also numerous other types of loans available where online applications can save considerable time.

Online Loan Calculators

Flexy Loans Online loan calculator

While online loan calculators may be relatively simple tools, they are extremely useful, allowing you the opportunity to compare and contrast different loans over different periods of time on varying interest rates.

As you’ll see from the examples below, many loan calculators will allow you to determine a particular amount of money, the term of the loan and interest rate.

You may also have the option to turn the formula around and enter the amount you can afford to pay each month – the calculator will display the maximum you can borrow over a set term/interest rate.

These calculators are a perfect way to compare and contrast the amount of interest you will pay over a longer period of time while also taking into account reduced monthly payments.

The key is to find a balance between what you can afford and the level of borrowings you require. Whether you are lending money for a car, debt consolidation, a holiday or anything else, you need to ensure that you are not extending your finances and potentially storing up trouble for the future.

Below is an example whereby the calculator will work out monthly repayments on a particular level of borrowings. It is useful to see the initial capital and the interest separately while also appreciating the term of the loan.

Flexy loans calculator

This table gives an example of the level of interest paid over a loan term which varies between two years and seven years for £10,000 at an interest rate of 9.9%.

While the longer the term, the lower the monthly repayments, there is a significant hike in interest payments.

AmountTermInterest RateMonthly RepaymentsTotal Interest paid
£10,0002 years9.9%£459.04£1016.97
£10,0003 years9.9%£320.22£1528.04
£10,0005 years9.9%£209.91£2594.46
£10,0007 years9.9%£163.32£3719.18

The following online calculator invites you to enter a monthly level of repayments you can afford.

The calculator will then work backwards to present you with a maximum borrowing level, although you can compare and contrast on different terms and interest rates.

Flexy loans loan calculator

The following table gives you an idea of the level of loan afforded on £300 monthly repayments over periods between two years and seven years at an interest rate of 9.9%.

There is a significant increase in the maximum level of borrowings, the longer the loan term but a telling increase in total interest payments.

Monthly RepaymentsAmountTermInterest RateTotal Interest Paid
£300£65352 years9.9%£664.63
£300£93683 years9.9%£1431.54
£300£14,2925 years9.9%£3708.00
£300£18,3687 years9.9%£6831.56

These calculators perfectly illustrate the pros and cons of different loan terms and interest rates.

Payday Loans

Flexy Loans Payday loans

As we touched on above, payday loans are the most recognised type of quick/fast loan and are popular with those experiencing short-term cash flow difficulties.

Some of the key factors to take into consideration when looking at payday loans include:-

Relatively High-Interest Rates

To be fair to payday loan companies, annualising short-term interest rates can often be misleading. While legally lenders have to supply interest rates and an APR these can often appear relatively high – anywhere up to 1500%.

If for example, a loan was taken out over seven days, then it would need to be worthwhile for the lender to consider such a transaction. As a consequence, what may be a relatively small amount of money, when converted into an interest rate could be an extremely high annual interest rate.

Ability to Pay

While it is fair to say that payday loans and similar short-term arrangements tend to focus on those with credit report difficulties, this is not always the case.

However, whatever your financial situation you will need to undertake an ability to pay test which will take into account a repayment plan, monthly living expenses and any surplus capital.

As the majority of payday loans are a source of income until the next payday, the majority are paid back fairly quickly. It is when you miss one payment that the problems can begin to mount.

Regulations

The payday loan industry has attracted more than its fair share of criticism, and regulators were forced to address these. We have seen a reduction in the interest rate allowed to a maximum of 0.8% per day of the original loan amount.

Charges have been capped at £15 and under no circumstances can accumulate interest and charges exceed the original loan amount. While these may appear relatively small changes, they are certainly a step in the right direction for those facing short-term financial difficulties.

Peer to Peer Loans

Flexy Loans Peer to peer loans

In the aftermath of the 2008/9 US mortgage crisis, we saw traditional UK banks withdraw from various areas of the lending market. This left a void which was filled by private banks, niche lenders and an array of the new peer to peer online platforms.

Often referred to as crowdfunding, these are highly technical platforms which allow lenders and borrowers to conduct business directly online.

There are a number of factors to consider when looking at peer-to-peer loans which include:-

Competitive Interest Rates

As this type of transaction is carried out online, via platforms putting lenders and borrowers in direct contact, the interest rates charged tend to be very competitive.

Even though the online platforms will take a small commission per transaction, this compares favourably to the average profit margin of traditional lenders.

Effectively missing out the “middleman” many people expect crowdfunding platforms to become even more popular.

Loans for All Occasions

While we have seen a huge increase in the number of property-related crowdfunding platforms, there are many different specialist peer-to-peer lenders.

Whether looking for bridging loans, development loans, personal loans or business loans, there will be a crowdfunding platform offering competitive rates.

Such has been the success of the crowdfunding phenomenon that many traditional banks have taken stakes in large crowdfunding companies to offset their margin pressure/loss of business.

Variable Term

Many lenders using crowdfunding platforms will work on relatively small margins (compared to traditional rates) with high volumes of business. As a consequence, many lenders will prefer extended loan terms so that they have a degree of visibility on interest and capital repayments.

However, it is very rare that you will see any early repayment penalties, which is again another bonus compared to some types of loan.

Regulations

Regulations covering crowdfunding have tightened significantly over the last few years. Initially, the industry fell under an array of different regulators, but there were no specific regulations to accommodate their style of lending.

This has changed with the EU and the UK introducing new crowdfunding regulations with more expected in due course.

There is a balance between cutting dead expected growth in this sector, by overregulation and allowing too much flexibility.

Personal Loans (Unsecured)

Flexy Loans Unsecured personal loans

As the term suggests, unsecured loans do not require any collateral and as a consequence will attract a higher interest rate than their secured counterparts.

That said; if you have a strong regular income flow, there is no reason why you can’t negotiate an attractive interest rate.

The UK unsecured loan market is huge and extremely competitive, although it can be challenging to find the best deal for you.

Online Applications

Many people will apply for personal loans via their current bank. The process is often very quick due to the fact that identification, address and money laundering obligations will have been met with existing accounts.

The bank will also be well aware of your spending habits and be able to calculate an affordability factor for your loan application.

Agreement in Principle

The Internet has really changed the way in which loan applications are delivered and considered. It is not uncommon now to carry out a five-minute loan application with your current bank and receive a decision in principle.

This effectively means that using the data entered the lender is happy to approve your loan, but they may need additional paperwork for administration purposes to rubber-stamp this.

When it comes to personal loans, you will see many companies specialising in particular areas. This includes those applicants with chequered credit histories requiring short-term funding.

While they will likely be hit with higher than normal interest rates, this can allow them to work their way through difficult short-term financial challenges.

Personal Loans (Secured)

Flexy Loans Secured personal loans

The beauty of secured personal loans is the fact that they allow you to use underutilised collateral as a means of reducing headline interest rates/APR.

You will be surprised at the range of security that loan companies will accommodate to attract your business. Obviously, in the event of a default, the security would be at risk, but it offers a useful buffer between debts and collateral for lenders.

Range of Collateral

While traditional collateral such as a property is more commonplace, we have also seen antique vehicles, paintings, investment portfolios and heirlooms used as security against personal loans.

When valuing collateral, loan companies are prone to err on the side of caution and undervalue collateral to create an additional safety net in the event of a default.

Interest Rates

There is a marked difference between the average interest rates for secured personal loans compared to an unsecured personal loan. The actual rate will vary depending on a client’s personal scenario and type of collateral used.

Interestingly, you may be able to arrange more attractive rates by lending relatively large amounts of money.

Aside from the mortgage market, the personal loan market in the UK is one of the most competitive and most liquid.

While the headline interest rate is obviously important, when comparing different loan terms and conditions, it is the APR you need to look at.

Debt Consolidation Loans

Flexy Loans Debt consolidation loans

Financial difficulties and debt consolidation are subjects which still have a certain stigma attached to them and not something many people enjoy discussing in public.

Therefore, the introduction of the Internet has given a huge boost to the sector, allowing people to research and apply for debt consolidation loans online, 24/7 in the privacy of their own home.

There are various issues to consider with regards to debt consolidation loans such as:-

Loan Term

The whole idea of a debt consolidation loan is to reduce your monthly outlay and where possible, reduce the average interest rate charged on existing debt.

However, it is also very important to give as much focus to the loan term. An extended loan will help to improve your monthly cash flow, but you could also end up paying significant interest over the duration.

It can be difficult to find a balance between reducing monthly payments and negotiating a term which does not overstretch your finances.

Paying Off High-Interest Debt

While a debt consolidation loan will improve your short-term cash flow, it will also allow you, depending on your financial situation, to pay off high-interest debt with a lower interest consolidation loan.

When you consider the high double-digit interest rates charged on credit cards and overdrafts, this can result in huge savings.

Debt Management Advice

Akin to a traditional mortgage/loan broker, there are now many companies available to offer debt management advice. They will likely have strong contacts in the lending market and may actually be able to improve on headline interest rates and APR.

However, they will also be able to advise you on the wide range of options available, some of which may be more appropriate for your situation.

Small Business Loans

Flexy loans Small business loans

The UK has for many years, been a hive of activity with thousands of entrepreneurs looking to launch small businesses and expand them going forward.

While commercial loans are a little different from their retail counterparts, numerous small business loans specialists are offering a range of advice online.

Some of the more common reasons given for raising small business loans include the following:-

  • Short-term cash flow
  • Investment in machinery
  • Attractive investment opportunities
  • Tightening of regulations
  • Increase in material costs

The vast majority of relatively early-stage small businesses will require a guarantor when seeking outside funding. Often this guarantor will be one of the directors and normally a founding director.

They will be asked to put forward a personal guarantee in the event that the company was unable to fulfil its financial obligations going forward and defaulted on repayments.

In traditional markets, this is not necessarily a major problem, especially if your business is profitable. However, unexpected events such as the coronavirus pandemic can cause huge cash flow issues and bring businesses grinding to a halt.

While thankfully the UK government has come forward with an array of financial assistance for small, medium and large-sized businesses there are still many challenges ahead.

Such is the competitive nature of the small-business loans sector that there are numerous advisers available to find the best solution for your particular issue/opportunity.

When you consider there are in excess of 300 participants operating in the UK lending market, there is no harm in discussing your requirements with a loan broker.

Guarantor Loans

Flexy Loans Guarantor Loans

As we touched on above with the small business loan, where a guarantor is often required, there are such options available for personal loans. You will sometimes see high approval loan rates for bad credit applicants and wonder how that is possible.

The likelihood is that the individual has managed to find a guarantor who will stand behind them in the event that they hit financial turbulence going forward.

There are obvious risks for the guarantor as well as a number of pros and cons for the underlying loan customer:-

Lower Interest Rates

The fact that many people struggle to secure funding because of their chequered credit history has brought guarantor loans more into focus.

In effect, the lender is ultimately dealing with the guarantor because the interest rate will be directly associated with their financial strength/collateral.

The loan applicant will be responsible for regular repayments, but in the event of default, the onus will move to the guarantor.

Secure Funding

There are numerous situations where someone with a chequered credit history will not be able to secure any type of finance. They may have missed numerous payments, disputes with creditors and may also be on the wrong end of legal action.

Normally lenders would not even contemplate negotiations in this scenario, but if a guarantor can be found that is a different matter.

So, the existence of a guarantor could well be the difference between a successful application and outright rejection.

Asset Sales

There is a common assumption that if the initial loanee was to default the lender would simply call in the guarantee, dispose of the collateral or demand repayment of the loan in full.

This is not generally the case. The traditional route would be to request the guarantor take over monthly repayments until the original client is in a position to do so.

If the guarantor was experiencing financial difficulties, then yes their collateral would be liquidated and the loan repaid. However, this is not the preferred route for lenders.

No Guarantor Loans

Flexy Loans No guarantor loans

No guarantor loans are similar to unsecured loans in that there is no backup in the event that the underlying client is unable to fulfil their repayment obligations.

The chances are that, especially with a chequered credit history, the interest charged on a no guarantor loan will be much higher than normal. Again, this boils down to the simple risk/reward ratio with a higher interest charge required to offset the additional risk.

There will come a point where even the most adventurous of lenders will refuse funding because the potential borrower is simply deemed too risky.

Online Instalment Loans

Flexy Loans Online instalment loans

If you have been looking at online loan applications, the chances are you will have come across online instalment loans. They are slightly different to more traditional short-term loans in that specific instalment dates are pre-agreed – not necessarily monthly.

These are perfect for individuals who may be expecting funds in the future but not necessarily on a regular basis. So they might arrange to pay an instalment every two months or any other period which suits their financial situation.

These types of loans are very useful where regular cash flow is unlikely, yet there is potential for significant sporadic income further down the line.

Due to the nature of this particular type of loan, you would likely incur significant penalties for late-payments and early repayment may not be an option.

This is a perfect example of why you need to look at both the interest and APR as well as the underlying terms and conditions.

Quick Online Loan Approvals

Flexy loans Quick online loan approvals

In general, the Internet allows loan applications to be processed in just a matter of seconds. The approval process will guide you as to what details and information is required, and then you simply hit apply, and you will receive a decision very quickly.

Various checks, including credit reports, etc. must be carried out, but this will all be automated. However, there will be an option to refer to an adviser for borderline rejections.

While there are huge benefits to quick online loan approvals, for many people it is the ability to compare and contrast loans in the privacy of their own home, at a time of their choosing, which is the key.

Summary

We have covered a number of different online loan opportunities and the various criteria used by lenders. The ability to apply for loans online has been a game changer allowing individuals to reshape their finances in the privacy of their own home at a time of their choosing.

This has helped reduce the historical stigma attached to short-term funding issues and given many people the confidence to address any financial challenges they may have.

How Can Flexy Loans Help?

Here at Flexy Loans, we have partnered with some of the UK’s leading Lenders.

They have already helped thousands of people get loans already, and they can do the same for you.

Choosing a loan broker like us (we don’t charge any fees) means our application process matches you with the best loan available to you.  All lenders we recommend are regulated by the FCA, which gives you an additional layer of protection.

To apply and see what loan is available to you, click on the below and answer the questions

Len Burgess
Len Burgess
Len Burgess is a 15-year digital financial entrepreneur. When he isn't writing or creating financial websites he is either watching cricket or football and spending time with his family, talking about football and cricket
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