By Peter Bee
Sometimes, applying and taking out a loan is a part of growing up and becoming an adult. Whether you want a new car, you want to start a business, or you just need to consolidate debt, loans can not only be incredibly useful but can also be downright necessary.
For the better part of the last century, needing to apply and take out a loan means heading to your bank and seeing if you can qualify.
That may all be changing, however, and as millennials begin to make up more and more of the consumer class, an undeniable trend is beginning to reveal itself. That trend is that millennials are much more likely to choose to borrow from online lenders than any generation before them. Perhaps that isn’t surprising to you, but what may surprise are the reasons why.
Before going into the more surprising reasons, there’s no doubt that one of the clearest reasons is because millennials are simply more comfortable online. Thanks to the fact that almost all of them simply grew up on the internet, they know where to go and what to look for when deciding what kind of sites and companies are trustworthy and which ones are not.
Credit Score
This may the most clear and straightforward reason why millennials are borrowing from online lenders. In order to qualify for a traditional bank loan, applicants must enjoy a very high credit score. If a millennial wants to take out a personal loan but doesn’t have a credit score of at least 700, they could either face incredibly high annual percentage rates, or just get flat-out denied.
For millennials, a good credit score can be rather hard to come by. That’s because the incredibly high need for millennials to take out student loans has put millions of millennials in debt in their young adulthood, before they have income, before they even really know how loans and debt work.
In fact, there are more than 44 million borrowers who collectively owe $1.5 trillion in the United States.
So, what do online lenders offer when it comes to the issues created by less-than-ideal credit scores? It’s pretty simple actually. Online lenders can typically offer loans to people with less than perfect credit scores.
Because they are less beholden to massive banking institutions, online lenders can make up their own qualifications for who can get approved and who cannot. Also, while banks all operate on the same general rules regarding qualifying applications, online lenders do not.
Even if your credit score isn’t good enough to secure a traditional-style online loan, you can always seek money through peer-to-peer loans. This means that you will be getting your money from a number of lenders which mitigates the risk on their end and makes it more likely for you to receive your loan regardless of your credit score.
Speed
Another reason why millennials are turning towards online lenders is because of the speed and efficiency in which they can get money to borrowers. When it comes to traditional bank loans, applicants can wait days or even weeks to find out whether or not they have been approved. After that, there can be even more waiting before the money they have borrowed is even in their account.
While millennials are often maligned for their need of instant gratification, when it comes to getting the money you need, instant gratification is definitely the way to go. There’s no need and no reason to be patient when it comes to getting the loan you need to cover the expenses you have.
If you are in debt or want to refinance a loan, waiting just a couple days could be the difference in keeping your interest rates low or watching them increase due to a missed payment. It could also be the difference between avoiding costly fees or having to see those added to your overall debt as well.
Online lenders have far less self-imposed loops that they need to jump through in order to approve and initiate a personal loan. Therefore, they can get your money to you in a matter of days or even hours. It’s a great thing to keep in mind if you are in need of fast cash.
Interest Rates and Fees
While the previous two reasons certainly make the fact that millennials are borrowing from online lenders more than any other generations understandable, this point makes the case why all borrowers should seriously consider taking out a personal loan online before heading to their nearby bank.
Because online lenders do not have to pay for upkeep of their store-front locations (because they don’t have any), they can offer much lower costs when it comes to loan fees and interest rates. That essentially means that you could be paying entire percentage points less to take out your loan.
Depending on the size of your loan and the length of your payment term, this can save you hundreds or even thousands of dollars over the life of your loan.
In the end, a lower interest rate should be all the reason you need to understand why millennials are considering online lenders more than any other generation before them. Considering the other reasons as well makes it all quite clear.
While there is always a benefit that comes with borrowing from a well-known and well-established brand such as a bank, that doesn’t mean it is the best option for you. While borrowing from an online lender does require a bit of extra preliminary research when it comes to making sure they are reputable, fair, and well-reviewed, that can prove more than worth it if you end up saving yourself time and money.
So, whether you are a millennial or a parent of millennials, it might be time to consider following in their tracks the next time you need to take out a loan and consider online lending.