Personal Loans

What Is an Online Loan and How Does It Work?

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Whether you’re facing surprise expenses or need to borrow money to consolidate high interest credit card debt, there are various borrowing options to consider. One common option is an online loan, which is essentially a personal loan you can apply for online.

Learn more about online loans here and the lenders offering them.

What is an online loan?

Online loans are personal loans you can apply for online, either with an online lender or a traditional bank, and use the funds however way you like. (Some lenders may restrict you from using funds to cover education costs, though.)

  • Secured or unsecured: Unsecured (you won’t need collateral to qualify)
  • Fixed or variable rate: Fixed
  • Average APR overall: 38%, in Q1 2019
  • Borrowing limits: $1,000 to $35,000 or more
  • Repayment terms: From one to five years or longer

Because personal loans are unsecured loans, lenders will determine your eligibility based on your credit and other information. That said, APRs offered to borrowers vary wildly. For example, the average APR for those with scores over 720 was 7.27% in Q1 2019 but 85.92% for borrowers with scores between 580 to 669.

What is an online loan good for?

When it comes to using your online loan, you can utilize the funds in nearly any way you want. Here are some ways borrowers use personal loan funds:

  • Consolidate high interest debt
  • Refinance credit card debt
  • Fund home improvements
  • Make a major purchase
  • Cover medical expenses

With a fixed rate and fixed payments, online loans are good for borrowers who want a predictable repayment timeline. Because you can choose your repayment terms, these loans also work for those who want more than a few months to repay their debt.

On the flipside, a credit card may make more sense if you only need to borrow a small amount and can repay it by the end of the month – as you’ll avoid interest charge.

Since online loans are unsecured, you don’t have to put up collateral to qualify. For risk-averse borrowers, this may make a personal loan preferable to a home equity loan or home equity line of credit (HELOC), which require you to use your home as collateral. The caveat is that you could land a lower rate with these secured loan products.

The benefits of an online loan

If you need to borrow money for any reason, you may be wondering if an online loan could be a better option than another loan product. Here are some of the benefits of an online personal loan:

  • Avoid visiting a physical bank branch: Online loans don’t require you to visit a physical bank branch to apply or accept your funds. You can complete the entire application process online and have your money deposited directly into a bank account.
  • Get a predictable monthly payment that will never change: Because online personal loans come with a fixed interest rate and fixed repayment deadline, your monthly payment will always stay the same. This can make these loans fairly easy to budget and plan for.
  • Know exactly when your loan will be paid off: Unlike credit cards that let you continue borrowing with no set payoff date, personal loans come with a fixed repayment schedule. This means you can borrow with a plan in mind and know exactly when you’ll be debt-free.
  • Get a loan with low or no fees: While some personal loans offered online charge an origination fee or management fee, there are online lenders that offer personal loans with no hidden fees.
  • May qualify for a lower interest rate: While credit card rates tend to be on the high side, you may qualify for a low interest rate on a personal loan if you have good credit.

What to look for when getting an online loan

While online loans make it easy to borrow money without ever leaving your home, it’s important to spend some time comparing the many options available. Like other financial products, not all online loans are created equal. Here are a few features to look for as you compare your options:

  • Option to pre-qualify without a hard inquiry: Some lenders let you get pre-qualified for a personal loan with only a soft inquiry on your credit report. This perk lets you gauge your ability to get approved, and at what rate, before you move forward with a full application.
  • Low fees or no fees: While some personal loans may charge an origination fee up to 8%, prepayment penalties, and other fees, this isn’t always the case. Compare loan options and look for lenders that offer online loans without an origination fee or any other fees.
  • A monthly payment you can afford: Play around with a personal loan calculator to ensure you can afford the monthly payment for the amount you want to borrow.
  • Competitive interest rates: Personal loan rates vary quite a bit. But since lenders offer different rates depending on their specific lending criteria, we recommend comparing rates and terms from at least three lenders so you know you’re getting the best deal.
  • Borrowing limits that meet your needs: Some online lenders have lower loan limits than others, so make sure to find a lender that will let you borrow as much as you need. Where some online lenders may let you borrow up to $50,000 in an unsecured loan, others let you borrow less.

Where to find an online loan

If your goal is spending as little time as possible searching for a loan, you may want to start your search in our loan marketplace. Depending on your eligibility, you may get to compare multiple loan options in one place. You may also take a look at the below lenders to kickstart your search.


LightStream personal loans are a good option for those with good credit; they’re unsecured and don’t require collateral. You can use a LightStream loan to remodel your home, consolidate debt, add a swimming pool to your backyard or pay off medical bills, although your interest rate will depend on your loan purpose.

The fine print

LightStream personal loans are available in amounts up to $100,000 for those who qualify, and you can repay your loan in 24 to 144 months. APRs range between 3.99% and 19.99%, but that’s after a 0.50% auto-pay discount. Without the discount, rates are 0.50 points higher. LightStream personal loans also come with no hidden fees and your interest rate is fixed for the life of the loan.


  • Low interest rates for qualified borrowers
  • High loan amounts for those who qualify
  • LightStream personal loans come with no hidden fees
  • Use your loan proceeds any way you want


  • LightStream personal loans are for consumers with good or excellent credit, so not everyone will qualify
  • Does not offer prequalifcations online so a hard inquiry on your credit report will be pulled when you apply.


Payoff is another lender that focuses specifically on online personal loans with the goal of helping you consolidate and pay off high interest debt. With a Payoff personal loan, you can apply online, verify your information and receive your funds electronically within a few business days.

The fine print

Payoff personal loans come with fixed APRs between 5.99% and 24.99% depending on your creditworthiness. You can borrow between $5,000 and $40,000 and repay it over 24 and 60 months. While Payoff personal loans don’t have many common loan fees, they can come with an origination fee of up to 5.00%%.


  • Low starting APR for those who qualify
  • Complete the entire loan process online
  • No hidden fees


  • These loans can charge an origination fee of up to 5.00%% of your loan amount
  • Payoff loans have a minimum credit score requirement of 640 and a maximum debt-to-income ratio of 50%
  • You need three years of credit history and no delinquencies on your credit report


Avant is another lender that focuses on online loans for consumers who need to borrow money for any reason. The company claims to have loaned out $4 billion to their customers so far, and they report a 95% customer satisfaction rate. Avant loans are perfect for consumers who want to borrow money for debt consolidation, home improvements or unexpected expenses.

The fine print

Avant lets you borrow between $2,000 and $35,000 for nearly any reason, and you can complete the entire loan application process online. You can even get your loan funds as soon as the next business day if you qualify. While your loan can be customized, repayment terms are typically available from 24 to 60 months. Interest rates vary by state. Avant branded credit products are issued by WebBank, member FDIC.


  • Complete the entire loan process online
  • Get pre-qualified without a hard inquiry on your credit report


  • Up to 4.75% of your loan amount will be charged as an administration fee
  • Avant personal loans aren’t available in all states.

OneMain Financial

OneMain Financial offers online personal loans that are easy to access. You can apply online and receive your funds in a local branch or via automatic bank transfer. Since OneMain Financial comes with higher interest rates than some of their competitors, however, they may not be the best option if you have good or excellent credit.

The fine print

Personal loans from OneMain Financial are available in amounts between $1,500 and $20,000. APRs range between 18.00% and 35.99% APR, and you can repay your loan over a 24 to 60 month term.


  • OneMain Financial lets you get prequalified without a hard inquiry on your credit report
  • Apply online and get a fast decision


  • APRs are high, considering they start at 18.00%
  • OneMain Financial offers minimal detail on their loan fees or eligibility requirements

How to apply for an online loan

If you’re sure you are ready to apply for an online loan, you have some legwork to do. It all starts with doing some basic research to compare online lenders ahead of time. Or, as we mentioned, you could also shop for a personal loan with LendingTree since it is a loan marketplace that lets you compare multiple loan offers in one place.

Either way, you’ll need to take the following steps:

  • Get your paperwork together: Gather relevant information you’ll need to apply for a loan such as proof of income and bank statements. Also be prepared to list your personal information on your application, such as your address, date of birth, Social Security number and employment details.
  • Apply online: Whether you’re comparing multiple loan offers through LendingTree or applying for a specific lender, you’ll need to go through the application process and supply all the information they require. Fortunately, you can do this all online and from the comfort of home.
  • Read the fine print: Check your interest rate as well as any fees you’ll be charged. Take a close look at the suggested monthly payment and determine whether it will fit into your monthly budget and spending plan.
  • Accept a loan offer and receive your funds: One big benefit of online loans is the fact that you can receive your funding automatically via bank transfer. Once your loan is approved, you could receive your money within just a few business days and you can use the money for any goal you want.


By clicking “Get Started”, you may or may not be matched with any lender mentioned in this article. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.


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