What to be aware of when borrowing
THE TERM “online lending” applies to a variety
of different loan models. In its broadest sense it
refers to a loan that isn’t from what might be
called a “traditional” funding source, like a bank,
a credit union or the government. It can refer to
a loan you can take out on your mobile phone or
laptop in the privacy of your living room.
Online lending has grown, in part because of
its potential to provide credit to borrowers with
limited credit histories and to historically under-served communities. For some borrowers, it’s a
matter of convenience.
If you’re considering an online loan, here are
some things to think about.
Different models to choose from
Online loan models are different in purpose
and in how they work. One common model is
platform lending, which connects borrowers with
investors. Other models allow you to take out cash
advances, consolidate debt, fund education, get
accounts receivable financing and more.
Deciding which loan is best involves identifying
which lender is the best fit for your situation.
Before you take out an online loan, compare
terms and rates from at least three different
established lenders who have solid track records.
If you don’t know anything about the lender, be
sure you understand who you’re doing business
with and what their reputation is.
Check online for news of any relevant business or legal matters or information about a
company before you decide to do business with
it. When loan shopping, look at the total cost of
the loan over the entire term and not just at the
Be aware of temptation
Appeals to get quick, easy money might sound
too good to be true, and they are nothing new.
You may see claims like “instant funding,” “low
rates, no hassle” or “a quick and free way to get a
loan in ;; seconds.” Always read the terms and
conditions of any offer closely, because the fine
print could tell a different story.
Generally, terms and conditions are listed at
the bottom of a website. Read the entire loan
agreement carefully before signing it to check
for any misrepresentations and potential hidden
fees and/or charges.
If you need a short-term loan, you may be
thinking about taking out an online payday loan.
Many websites that advertise payday loans aren’t
actual lenders—they’re lead generators, which
make money primarily by finding customers for
lenders. They collect your personal information,
Lead generators might disclose that they are
not lenders, but this information can be hard to
find on their website. They might claim that they
can find you the lowest-cost loan, but those claims
may not be accurate. Whether or not you take out
a loan, entering your personal information on a
payday loan website could subject you to the
possibility of identity theft or other misuse of
Engaging in unfair, deceptive or abusive
business practices is against the law. Depending
on the advertising claims a lead generator makes
about itself, the lead generator may want to disclose its role to avoid misleading consumers and
violating the law. If you are unsure, ask.
Federal consumer protection agencies have
been working to prevent consumer harm from
illegal payday loan practices. The Consumer
Financial Protection Bureau (CFPB) supervises
payday lenders. According to the agency, relief
for consumers harmed by illegal payday lending
practices has been more than ;;; million.
The Federal Trade Commission (FTC) has
sued several online payday lenders for violating
federal laws. The lenders allegedly lied about the
cost of their loans, required borrowers to allow
automatic payments and falsely threatened to
sue borrowers or have them arrested for nonpayment. The FTC has filed actions against payday
lenders that locate themselves on Native
American reservations in an attempt to evade
state and federal consumer-protection laws.
The National Conference of State Legislatures (
ncsl.org) has helpful information on state
statutes regarding payday lending. If you want
to know whether a payday lender is licensed to
do business in your state, check with your state
banking regulator or attorney general. Lenders
that are not licensed to do business in your state
might not obey the law or offer you other protections required.
The FTC (
ftc.gov) and the CFPB (consumer
finance.gov) are resources for consumers when
it comes to educational information and tips on
loans. Both agencies take complaints from consumers about fraud, abuse and deceptive business
practices. When you submit a complaint to the
CFPB, the agency forwards the complaint to the
company and works to get you a response.
If you consider an online loan, weigh your
decisions carefully. Do your research so that you
understand what you’re signing up for. C
Amanda Horowitz is a writer,
businesswoman and owner
of Fight Back! She is the
daughter of Fight Back’s
founder, David Horowitz.
Fight Back! has received
multiple Emmy Awards
and awards from more than
;;; government and citizen
groups and has helped to
draft over ;; pieces of con-sumer-related legislation in
the United States.
Horowitz can be contacted
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