Smart Ways to Use Online Loans

by on November 15, 2017

If you are in an emergency that requires money, an online may be the lifesaver you need. Unlike traditional banks, online lenders usually do not check your credit score or require you to have a guarantor or collateral. The process of applying for an online loan also eliminates the bureaucracy and paperwork of traditional banks allowing you to have the money in a matter of hours or days.

The convenience of applying for the loan and getting the money promptly allows many people to take care of emergencies that cannot wait till the next payday. Despite the convenience, you need to use online loans intelligently or they may send you into deeper financial problems than those you were trying to solve.

Here are a few pointers on how you can utilize online loans to achieve your financial goals.

Study the rates and interests carefully

The interest rates for online loans are very high. For instance, a two-week loan may attract a 400% interest. For a loan whose repayment period is in months, the Annual Percentage Rate may be as high as 700%. Some lenders will also take advantage of your desperation to include extra charges, rates and conditions.

Therefore, pay attention to details of the loan agreement you are making with the lender before signing it. Calculate the total amount you would have spent by the time you complete the loan repayment. Also make sure you can tell how much you will be owing to the online lender at any date of the repayment period. This will help you not only to strategize your repayment schedule but also notice any hidden rates.

What is your loan for?

Online lenders have placed their promotions strategically both online and in other media touting themselves as your lifesavers. If you are not strong-willed, the promotions may tempt you to take up loans even when you don’t need them.

Before taking the loan, ask yourself if you can do without the item or service you are borrowing to pay for. If it can wait till your next payday, do not take the loan. Also consider other means you can use to raise the money e.g. borrowing from relatives, thus avoiding the high interests.

The purpose of the item you want to buy also matters. If you are going to buy a car or computer for your personal use, do not take an online loan for it. It might make sense however, to take a loan and buy or repair car or computer that you intend to use and get some income.

Overall, online loans should be used for emergencies only.

Payday deductions versus your salary
Most online loans require you to repay a certain amount every payday. At the time of borrowing, the amount may seem negligible to a person that is not familiar with payday loans. However, come payday this amount may cripple your finances completely if comprises a huge portion of your income.

Before making the loan agreement compare the amount to be paid in every installment to your pay. Ensure that what remains can sustain you and your dependents till the next payday. If you do not do this, you may be forced to borrow more money which will also need to be repaid regularly thus setting you on a cycle of loans and repayment.

Borrow only the amount you need
A common mistake that many borrowers make is to borrow more than they need so they can remain with some surplus. Unfortunately, the surplus amount is usually used on activities or goods that you could have done without.

Considering the hefty interests charged on online loans, it is reckless to use the loan money on such unproductive goods or services. Therefore borrow only the amount you need even if your credit limit is much higher. By doing so, you will be able to repay the loan promptly thus freeing your salary and setting yourself towards financial freedom.

One lender at a time
It is possible to exploit the online lending process to get loans from multiple lenders. This may seem like a smart move so because you will get a lot of money at a go and maybe cater for many of your needs. However, it is not smart because all those lenders will also require you to pay them from the same income.

As a result, the repayment amounts may exceed your salary amount or leave you with very little to sustain you. This will eventually push you away from financial stability. If you are totally unable to repay the lenders, it will impact your credit score negatively and soon not even online lender will loan you any money.

Therefore stick with one lender and discipline yourself to fully repay one loan before taking another one. Consistency with one lender may also get you better promotional deals in subsequent loans.

Avoid lenders with prepayment penalties
As unreal as it may sound, some lenders will penalize you for repaying your loan too early. This is because by repaying early, they will be losing on some of the interest. Run away from such lenders.

Choose a lender that is flexible enough to allow you to repay your loan in bulk if you get some unexpected cash without penalties. Such lump sum repayments will help you reduce the interest you would have paid. You can shop around for lenders through sites such as

Beware of scams

The bureaucracy of banks may be tedious but it also protects you from being exploited. The online lending service has been flooded with lenders but many of them are scams that target unsuspecting borrowers.

To avoid scams, confirm the credibility of the lender with Better Business Bureau and other relevant agencies.

There are also online platforms that serve to connect you with lending companies. Such platforms are often get feedback about the lenders and weed out those with issues. Using such platforms minimizes your chances of getting scammed quite significantly.


Online loans can really save you when you have an emergency but only if utilized intelligently. Conduct due diligence to confirm that the rates you are being offered are manageable and that the lender is genuine. In addition evaluate your financial situation to ascertain that you really need the loan and can repay it comfortably. Do not be afraid to ask for better terms or to decline the offer altogether if you are not comfortable with the terms of the deal.

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