Bio: Evangeline Barber Ploof is an educator, blogger, and COO of Big Easy Magazine.
Most things we used to do in person can now be perfectly managed online. One of the most well-known statistics shows that, when it comes to retail businesses, the estimates are that online shopping increases at least 16% annually. However, does this apply to the loaning business as well? Interestingly, it does, and a lot of storefront lenders business have slowly transformed their business to an online platform. However, not all of them have followed this path. Why is that?
Well, despite the rapid growth of online loans, there are a lot of people that continue to prefer brick-and-mortar loan businesses. This might be due to many different reasons. One of them is that they feel that these stores are more transparent.
Furthermore, they find it easier to solve their doubts when they’re dealing with a person directly instead of online. Lastly, storefront lenders provide the loan in cash immediately, whereas online lenders might take more time. However, many of these things are starting to change. This is why more lenders are either switching to an online loan system or adding them as another option to their business. But how did it all get started?
Banks changed their loan rules
Before the 2008 economic crisis that shook the United States and the world, getting a loan from a bank was extremely easy. Therefore, most people simply went to the branch closest to them, and they got the money they needed. However, after the crisis, a lot of banks decided to remove lending from their options as a business.
To this day, some banks still offer personal loans; however, the requirements to get one can be extensive, and there isn’t a quick way to apply for a loan at a bank. This is one of the main reasons why many online loans businesses came to exist.
Loaning money online
As it tends to happen with the use of new technology for traditional businesses, there was a bit of resistance. Besides, there was a worry regarding how safe it was to ask for a loan online. Despite this, online loans started to become more common due to the many benefits they offer:
- Expediency: Unlike bank loans, online loans are usually approved more quickly. However, there is still a comparison to make between storefront lenders and online lenders. After all, storefront lenders give the money in cash and immediately.
- Interestingly, many online loans websites have maximized the efficiency of their service so that they can verify the necessary information at a faster pace. This way, many of them can also compete with brick-and-mortar loan businesses when it comes to speed. Furthermore, if you need your money in your account as soon as possible, this might be faster than getting the cash and having to make a deposit.
- Attractive rates: Something online lenders have done to surpass storefront businesses is offer better rates. They can afford to do this because they don’t have to spend on the upkeep of their physical store. Therefore, the interests and fees associated with payday loans made online should be lower than those found at a physical loan business.
- No collateral: The great majority of online loan businesses don’t ask for collateral. This is a great advantage, as people don’t fear they will lose their property, as they did with banks. When it comes to storefront lenders, it’s common for them to ask for a post-dated check as a way to guarantee the payment. This doesn’t happen with online lenders.
The thing to keep in mind is that this doesn’t mean that you can forget about paying this loan. Not only would it be wrong, but your credit score would be affected as well. Therefore, your access to higher loans when it’s time to make big purchases would be restricted. It’s important to always think about the future despite today’s needs.
Becoming an online business
Before, we talked about some of the benefits for clients of loan businesses; however, it’s important to highlight how the owners of these businesses benefit from setting up an online platform instead of a physical store. These are some of the reasons why many of them have changed their business model:
- Lower upkeep: As it has been stated before, the money spent on maintenance of a physical building is much higher than what is spent to maintain a website. While there needs to be an initial investment that includes a web designer and buying the website’s domain, the savings in this regard are considerable.
- Marketing: Online lenders have embraced digital marketing as their way to make their business known. Meanwhile, storefront lenders tend to continue with traditional methods such as tv ads and clients’ references. Digital marketing can be much more affordable than traditional options, and these businesses get to expand their reach in an impressively short time.
- Convenience: This is something that applies both to clients and business owners. Having an online business allows them to have more flexible hours, which in turn, provides them with the opportunity to pursue other interests. On the other hand, clients don’t have to spend their time or money on transportation to get to the physical location of the business. They can do everything they need from home or their work.
- Innovation: While it is true that some clients continue to prefer physical stores, the online world has been steadily growing during the past decade. This means that businesses that are willing to adapt to their clients’ needs are more likely to survive.
- Safety: This is another item that applies both to business owners and clients, and it’s a delicate one. While storefront lenders usually have strict security measures in place, there might be a rare occurrence in which someone tries to take the cash stored there.
This is something that it’s very unlikely to happen online. Therefore, online lenders have this advantage when it comes to their business. However, there’s an interesting side of the coin when it comes to the clients.
It’s very important that clients properly vet the website they’re planning to use to get their loan, be it a payday loan or a different one. This is because sometimes, these websites are not owned by direct lenders, but by criminals pretending to be one.
They might prompt the user to provide bank account or credit card information that could lead to them stealing their money. However, most legitimate online lenders have easy ways to provide customer support and reassuring information when it comes to the legitimacy of their business.
Furthermore, users can visit third-party websites to check reviews and comments about the business. This is another way in which technology can help in making things easier for everyone. Be it by checking with the Better Business Bureau or with trustworthy websites, this is a great way to make sure everything is in order.
The transition from physical loan businesses to online businesses is far from over. Every day, more storefront lender business owners see the benefits of changing their model to an online one. Furthermore, users are becoming more used to getting their loans through a website instead of going all the way to a physical location. This might very well be the future of lending.