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Twelve tips for online borrowing

When it comes to borrowing money online, a customer needs to be educated and ready to ask key questions regarding the transaction. There are several quick and easy steps you can take to ensure that your transaction goes smoothly, and that the money you need today won't come back to haunt you tomorrow.

1. Is it a "real" company, or just a Web site?
Legitimate companies and sites will have an actual physical address. This "real life" contact information (a physical address and/or telephone number) should be easily found on their site. But don't just take their word for it—call the number or check online yellow pages to ensure that it's not fake.

2. Location, location, location
Even if the company has a real address, make sure the company is incorporated within the United States. Doing so allows you to take advantage of the appropriate federal (and even state) lending laws and legal protections.

3. Does the lender conform to the Truth in Lending Act?
Always make sure that the lender tells you what your interest rate and Annual Percentage Rate (APR) will be before finalizing the agreement. Since all rates should be based on your credit history, the rate should not automatically be the same for every borrower. If the lender does not tell you the rate—or does not disclose it clearly—it is always best to walk away and find a more upfront and honest lender.

4. Protect your privacy
The company's privacy policy should be offered on their site, and easily accessible, even before you start the application process. Of course, such information is only useful if you actually read it, so take the few minutes and find out how the company will use, share, and protect that information before entering into any agreement.

5. Does the company offer paying by allotment?
Paying by allotment is easier, faster, and prevents you from losing or forgetting a bill during a move. It is, however, illegal for a lender to make it a requirement and should never factor into a loan decision. Just remember that if given the option, it can be a great benefit.

6. Make sure the site is safe and secure
There are two ways to tell if the site you are using is secure once you begin the application process: 1) There should be a yellow "padlock" icon at the bottom of your browser window that indicates you are on a secure connection; 2) the Web address should start with "https" instead of just "http." Also, depending on the browser you are using, you should get a "warning" window informing you that you are using a secure Web page.

7. Check for the Better Business Bureau (BBB) online program
If the Web site has a "BBB Reliability Program" logo on its Web site, click the logo and see if it takes you back to the BBB site, since the logo can easily be copied and pasted into any random site. While you're there, spend a few minutes and search using the company's name to see if any complaints have been filed and if they were resolved.

8. Does the lender make sure you can repay the debt?
Any company you borrow money from should be worried about giving you more debt then you can handle. If they don't factor your debt ratio (how much you owe vs. how much you earn), then they probably are not worried about your ability to repay the debt. It is up to you to pay the loan back, so make sure you are dealing with a lender that won't get you in over your head.

9. Look for a satisfaction guarantee
Any company confident in its product will offer some type of no-questions-asked satisfaction guarantee. Lending should be no different, especially when you consider the impact a bad borrowing decision can have on your finances.

10. Beware of peer-to-peer lending
There has recently been a growth online in what is called "peer-to-peer" borrowing, where one person loans money at an agreed upon rate to another person. But those sites are based upon trusting an individual you don't know, who may or may not have your best interests in mind, and may not use your information in a legal and ethical way. They also don't have to conform to federal lending laws, so be cautious if you ever consider using such a site.

11. Does the site make financial education information readily available?
Legitimate lenders want consumers to make smart long-term financial decisions. By making financial information and educational materials readily available on their site, these lenders recognize the importance of protecting not only potential customers, but themselves as well.

12. Protect your credit report
Whatever online lender you use should report your positive payment history to at least one of the major credit reporting companies (Experian, TransUnion and Equifax). This is important because some lenders will only report negative items. If possible, ask the company what their reporting policies are by phone, or even by live chat if offered. Beware of companies who do not do any credit reporting at all.

While these tips are in no way all-inclusive, they are easy to follow and can help secure your transaction. Using the Internet to borrow money is a very convenient option that has many benefits. It is important, however, to do some simple homework to ensure that you are dealing with a reputable company. Doing so can not only get you the money you need, but also start a long and beneficial relationship between you and your lender. And all from the comfort of your own home.

 

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