Online lending: It covers more than
credit cards By Holden
Lewis • Bankrate.com
Editor's note: In February
2002, NextCard's parent company, NextBank, was closed by
Office of the Comptroller of the Currency (OCC) and the
Federal Deposit Insurance Corporation (FDIC) was named receiver.
The company no longer issues credit cards.
Instant credit and
attractive loan terms
While virtual banks try mightily
to attract customers looking for low-cost checking accounts,
other online companies concentrate on lending money. They
figure that doing business online saves money, so they can
lend at attractive terms.
The pioneer in this business
is NextCard, which started taking credit applications online
in 1997. NextCard promises instant approval and allows consumers
to customize cards. For example, they can get a card with
a low introductory rate that jumps higher after a few months,
or get a card with an interest rate in the middle that doesn't
change. One of the more successful virtual banks, Juniper
Bank, offers checking accounts, but its primary marketing
focus is credit cards. Juniper carpet-bombed America in autumn
2000 with direct mail offers for its cool-looking, translucent
credit cards. Six months later, Juniper had 140,000 accounts.
Most were credit cards, a spokesman says, but the bank expects
some of its credit card customers to open other types of accounts
as they get more comfortable with the service.
Credit cards aren't the only
game in town. Some lenders offer instant lines of credit with
online retailers, and other lenders offer mortgages and car
loans.
NextCard and a competitor,
eCredit, provide access to instant credit for customers of
online retailers that sell big-ticket items such as computers,
jewelry, furniture and art. NextCard will extend credit to
online customers of Diamond.com and Etronics, for example,
while eCredit finds lenders who will extend a line of credit
to online retailers including Gateway and Hearts on Fire,
a jeweler.
E-Loan is the most prominent
online provider of vehicle financing. Another well-known company,
Lending
Tree doesn't lend money directly but acts as a broker,
helping consumers find mortgages, auto loans and other types
of credit.
Thriftiness
Credit cards, auto loans and mortgages are much
more complicated than checking accounts. Sometimes online
lenders offer the best deals and sometimes they don't. It
really depends upon your needs. Perhaps an online mortgage
lender offers a loan with lower fees but slightly higher interest
than your bank. Depending on how long you want to live in
the house, either loan could be a better deal.
It definitely pays to shop online. E-Loan's
president says 10 to 15 percent of mortgage shoppers in America
visit his company's site, but most of them log off the Internet
and ask local lenders to match loan terms they found online.
That can be a pretty effective gambit. E-Loan's president
would prefer that more of those shoppers stay online and get
loans with his company.
Consider NextCard's application form. It's short, and the
company promises that it will decide within 30 seconds whether
to give you a card. Almost anywhere you apply online for a
credit card or an instant line of credit, you can expect to
get an answer within five minutes.
Mortgages are more complicated. When you apply online for
a mortgage, you still have to complete a pile of paperwork
that arrives in the mail a few days after you fill out the
online application. While online mortgages are avaliable,
most people only use them for comparison shopping.
There always are security risks with entering
personal information on Web sites. The transmittal of your
information is pretty secure if you can see an icon of a locked
padlock at the bottom of your browser window. That symbol
means that the data in the forms you're filling out will be
encrypted when it is sent.
As far as privacy goes: When you apply for a
loan, you always open yourself to an invasion of your privacy,
whether or not you apply online. Expect to give out your Social
Security number and for the prospective lender to look at
your credit score.
