Online vs. Brick and Mortar Loans

If you are a prospective borrower in the Internet age, there is more than one way to access debt financing. Traditionally, loans were provided and administered by financial institutions in physical “brick and mortar” settings. A customer would go in, explain their request, provide the rationale and supporting documentation, and gain an approval or a rejection. Fast forward to now, and a customer with Wi-Fi can open their browser, go onto an online lender’s website, fill out a form with their request and supporting information, and gain an approval or rejection – all digitally. While this convenience factor has certainly impacted the volumes of customers and the size of the loan book at the brick and mortar institutions, the jury is still out on which of the two options offer the better proposition.

The truth is that the channel you choose should be contingent on your preferences and needs at that point of time. A person looking for a mortgage to buy a new home has a vastly different set of circumstances than a person who needs immediate cash for an emergency surgical procedure. Therefore, the criteria that you use to vet different loan providers – whether they be digital or physical – should begin with you! To help you in this assessment, below are some of the main advantages and disadvantages of both types of loans.

Online

• Convenient 
• Access
• Time
• (Potentially) Lower Rates

The most obvious benefit of online loans is the tremendous convenience it offers. Applicants of online loans have repeatedly cited that the requirements for an online lender are substantially smaller than those of an institutional lender such as a bank. In online loans, you are simply required to have the details requested and ensure that you fill them out without errors. Once this is done, the website will send you a message detailing if you qualified for the loan and how much you are approved to borrow. This is in stark contrast to having to go into an institution and possibly make multiple trips to and forth before you qualify for the loan.

After the financial crisis of 2008, regulators of the financial industry worldwide have imposed more stringent regulations on banks and lenders in general. However, the online loan industry is not as regulated – yet. This means that a customer who was on the borderline between acceptance and rejection for an institutional loan may pass the minimum criteria required for an online loan, thereby giving them access to the funds they need.

The other positive is the time savings provided by online loans. Even ignoring the time you save by not having to walk, drive or commute to the bank, there are substantial time-related benefits offered. Most online lenders require the borrower to fill in a smaller amount of details than banks who require greater detail for both diligence and regulatory purposes. This means that you complete the loan application faster and receive your funds faster as well. 

Institutional lenders have to cover costs such as manpower, rent, electricity etc. This means that the rates offered by an institutional lender may sometimes be higher than those offered by online lenders. It is advisable to be careful when evaluating rates though as is further explained later on in this article.

Brick and Mortar

• Larger Loans
• Lack of Personal Relationships
• Products

With online lenders, you are fairly limited in the size of the loan being offered. For example, you would be hard-pressed to gain a mortgage online at competitive rates. For these types of expenditures, it is best to go into an institutional lender and walk through the process (albeit longer) to get the loan size you need.

With institutional lenders, you will be assigned a loan or credit officer who will manage your loan and answer any questions you may have in the process. As this relationship builds over time, the loan officer may user his/her discretion to waive fees and charges that would normally have to be paid. With an online lender, there is no scope for this as there is no physical person on the other side of your transaction.

Most institutional lenders have more services than just lending. Some may offer services such as deposit accounts, brokerage, credit cards etc. These products often have built-in incentives for existing customers of the bank. So for example, after receiving a loan, you may be eligible for a checking account with no bank charges during the year. With online lenders, this is not possible in most cases.

As can be seen from above, your choice of lender is very dependent on your personal needs and financial profile at the time of borrowing the loan. There is no truly right answer here. You have to exercise your best judgment to evaluate your options and select the one with the best fit for your needs.

But while there is no one right answer, special care has to be taken when choosing the lender you ultimately go with. Especially for online transactions, it is important to partner with a trusted lender with an established track record and good customer reviews. Magicalcredit.ca is one such online lenders that strives to provide customers with a transparent process and customized solutions tailored to their unique needs. Ultimately, it is your hard-earned money, so it is in your best interests to ensure that you are channeling it into the lender that has your best interests at heart.