Online vs. traditional personal loans: Which application method is right for you?

The application procedure for personal loans has changed enormously because of the growth of fintech and digital banking. Borrowers can choose from two approaches: either the traditional and offline process, or the online request for a loan. To help you decide which process is most appropriate for your borrowing style, let's consider some of the advantages and disadvantages of each type of process.

Understanding the basics

1. Online personal loan application

An application for a personal loan online is made from a bank's or a non-banking financial corporation's website, mobile app or third-party lending platform. This is done electronically and generally without any human interaction, and includes everything from KYC to approval.

2. Traditional personal loan application

The traditional approach includes going to a physical bank branch, filling out paperwork, and submitting hard copies of your documents. Not only can you expect the possibility of returning multiple times in addition to face-to-face verification.

Key difference between traditional vs online application

1. Speed & processing time

• Online: Most internet lenders say they will approve or make a decision either right away or within 24 to 48 hours. Often money is dispersed the same day.
• Traditional: The process is slower, takes three to seven business days, and is slower because of in-branch requirements and manual verifications.

2. Documentation & paperwork

• Online: All digital. Documents may be scanned and uploaded, no printing and no couriering.
• Traditional: Needs hard copies of verification of identity, verification of address, and verification of income. Incomplete paperwork can add time to the process.

3. Human interaction & assistance

• Online: Limited to helplines or chatbots. Best suited to confident, independent borrowers.
• Traditional: Support is available in person. The relationship manager will give you clear explanations of terms, options, and repayment.

4. Data security & trust

• Online: Strong encryption, but users need to be wary of fraud and phishing.
• Traditional: Less risk of cyber security issues, it's more likely to have manual errors or misplaced documents.

5. Accessibility & convenience

• Online: Apply from anywhere, at any time - ideal for employees in cities or remote locations.
• Traditional: Limited to employee availability and bank hours.

6. Interest rates and Offers

• Online: Many online lenders provide pre-approved loans, and offer reasonable rates.
• Traditional: Relies on personal relationships, it may provide better interest rates for long term, or loyal customers.

7. Transparency & comparison

• Online: With a click, it is easy to compare interest rates, EMIs and processing fees from various lenders.
• Traditional: Limited to the options provided by the visited bank branch.

Which one to choose?

• If you are the type of consumer who embraces freedom and values time, then online personal loans impart speed, transparency and simplicity.
• Conversely, traditional loans provide more trust and interaction, which may be appropriate for larger loans or for consumers who want certainty and interaction with a human.

In conclusion, which is best will depend on how comfortable you are with technology, your need for speed, and your desire for personal contact. If you are tech-savvy and need quick funding, online loans can be the best choice for you. On the other hand, if you need a personal touch or are making a larger financial commitment, a bank branch may still be the best choice for you.

Disclaimer:Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.