Do Online Lenders Really Offer The Cheapest Loans?

Before we go on with this article, it is important to differentiate between an online lender and a lender with a presence online.

An online lender is one that has it’s whole business front online.

It is supported by a back office that is either a real physical office, or has a workforce made up of remote workers situated all over the country.

A lender with an online presence is just the regular lender that we are accustomed to.

They operate from an office that attend to walk-in customers and do cold calls to prospect for clients.

And they have a website that serves as their presence online so that customers can easily find them and make appointments.

As you can see, an online lender will have lower operating costs. Something they tout regularly to reason with their target market how they are passing the savings they make to their customers through lower interest rates and lower fees.

They are thriving in this digital age and growing by the numbers each year.

But there are always concerns with online companies with no physical location.

I just recently ran into a couple who were elated with how great a deal they were offered by one of these online lenders and only find out later that they have become the victim of fraud.

The worse part is that by the time they realized what they had gotten themselves into, they had already gone pass the closing date.

They were lucky as the seller was sympathetic and a mortgage broker managed to quickly arrange the financing to close the transaction.

Unfortunately, stories like these don’t always have a happy ending.

Other than being the victims of outright fraud by companies that don’t exists, victims of predatory lenders often have a huge marketing network online.

But the irony is that the real physical world has as much, if not more, unethical lenders plying their trades.

The reason being customers who don’t go online are even more prone to predators as they are not well-informed due to the lack of online research.

Saying that, there are actually a good number of reputable and credible internet lending companies.

The problem is that big names are probably going to offer standard market rates. What they offer to consumers is convenience more than anything.

To find loans better than them will require a borrower to lean towards online lenders who are lesser known.

But borrowers need to practice caution about who they are dealing with.

After all the majority of borrowers start shopping for mortgages online before anything else.

Do online lenders really offer the best loans?

The answer to this decade old question is “it depends”.

Remember that a good mortgage is not always about the interest rate. It is also about the service, down payment, closing costs, points, etc.

If you lack certain documents, more flexible documentation requirements will help you. If you have bad credit, sub-prime loans might be ideal even though they have high interest rates.

Even if an online lender promises the lowest rates due to it’s automated and streamlined processes, they might only be referring to clients with credit score above a certain threshold.

This might not apply to you.

As you can see, it’s not always about the cheapest loans that makes one the best.

There are various other factors as well.

One should let go of the objective of seeking the cheapest mortgage and instead focus on finding the most suitable one.

When you think from this perspective, you will then realize that the best loans can be found both from online lenders and from traditional lenders as well.

In fact, a mortgage broker is a borrower’s best bet to locate the best home loans he qualify for.

And they can be found both online and offline.

The internet however, is a great place to conduct your own research regarding the mortgage market and the lending market as a whole.

Look for interest rates, terms, freebies, and other features offered by lenders. Then compare them with the packages offered by the local lenders.

If need be, inform the local lenders about what you found available online to encourage them to sweeten their offers.

And if an online lender is offering the same thing as a local lender, going local should give you more peace of mind that you can always walk in and make a scene for being taken for a ride.

Yet at the same time, don’t think for a moment that a local lender will be able to provide a higher level of service after closing the deal.

The fact is that after a loan closes, most of them are passed onto third parties for account servicing.

This means that on that front, local lenders are pretty much the same as online lenders.

When applying for mortgages online, one should keep these tips in mind.

  • Decide beforehand whether to go with FRM or ARM
  • Have an idea what is your preferred down payment, points, term, etc
  • When presented with questionnaires, fill them up to the best of your knowledge without lying
  • Keep in mind that the rate initially quoted are most probably generic prices that you won’t qualify for
  • Also keep in mind that interest rates and points quoted today might change the next day
  • Always clarify the source of particular fees when you are unclear
  • Ask for loan estimate and closing disclosure form when applicable
  • Get quotes sent via fax or email so that you have it in black and white

While lenders and broker will laugh at you for comparing mortgages like a mad man, behind closed doors, they actually fear losing you as a customer.

A knowledgeable consumer is a powerful one that businesses will not be able to take advantage of.

After all, a mortgage is worth hundreds of thousands of dollars. Sometimes even into the millions.

If you don’t put all that effort into research for such a big ticket item, when will you ever?