E-loans

In accordance to informal statistics the loan market as up today is $89 billion with about 6,000,000 loans per year and average loan amount $300. With this loan market potential and the growth of the cyberspace economy more and more financial institutes offer the online or e-loans targeting the borrowers through the Internet. The consequence of the new opportunities is an increase of the business activities and its further expansion over Internet. And it is understandable as by offering such services through Internet the local banks can expand their influence and attract the customers from different parts of the world. From the other point of view, don't forget the fact that by offering the Internet transactions of the borrowed money directly to the account of the customer your local bank can cut its own operational expenses and, as a result, offer the better interest rate and the faster approval basing on the limited but sufficient information provided by the potential borrower. There are also the Internet -only banks enlarging their customer base by offering  lower fees on banking services, some times even 100% free checking and the other conveniences like that you don't have to change the bank because of your relocation. The interest rate paid by said banks can widely vary. Some will pay no interest at all; others may come with interest rates higher than so called "high interest checking accounts" at traditional banks. So if the interest rate doesn't exist you may use these accounts as a stop-off before sending money or paying the bills.  In most of the cases the Internet-only banks may come with the better loan options than traditional banks. Despite all visual conveniences, there are some major inconveniences that you, as the borrower or the customer, in general, may expect. First of all, the Internet-only banks do not have ATM machines, in order to withdraw cash from your account you might be charged with the fee of the host bank. The other inconvenience is that you have to mail your deposits. There's also potentially larger drawback as well. So to avoid the late payment fees, you have to send the payment at least 10 days prior your due date. In that case you have to ensure the availability of the funds earlier and, in other words, you would limit yourself in spending the money within that additional five days. Once we have overviewed the general banking options let's go through the most common ways to get the loans through Internet.

The USA has developed an "ideal" system so called "credit history" than allows the bank to determine in minutes the eligibility of borrower, the potential loan amount, interest rate and term of the loan. Let's say the good credit history with 600 points and up would allow the borrower to get the interest rate lower on at least 1-2% in comparison to the borrower with medium or bad credit history.  What are the key-factors influencing the credit history? Generally speaking, it is the number of open accounts and store credit cards, your duly payment of the bills and loans, amount of credit cards debt and their due date, fees and late payment charges imposed by the banks, disputes or investigations over the funds... 

The most popular e-loan offered by the Internet is the Payday loan. Payday loans are short term loans collateralized against your next paycheck. Online payday loans are usually marketing through e-mail, online search, paid ads and referrals. The specific feature of the payday loan, which is obvious already from the name, is that they are due by the next payday. The other hidden danger is the astronomic annual interest rate that can reach as high as APR of 650%. So let's say the $500 loan on two-week term would coast you $150 so $650 would be automatically withdrawn from your checking account on a due date. And, of course, a borrower shall be aware of the potential identification theft as all the requested information is provided by the open communication channels of the Internet and many lenders do not have high level of protection of disclosed payee information. Many lenders renew automatically the loan, withdrawing the finance charge from the borrower's account and extending the loan for another pay cycle. Contracts from the Internet payday lenders include a range of one-sided terms such as mandatory arbitration clauses, agreements not to participate in class action lawsuits and agreements not to file for bankruptcy. The payday loans are on high demand throughout customers with low income, living from paycheck to paycheck, and it is regarded as the easiest and fastest way to emergency cash between paydays. The application procedure is quit simple. In order to qualify for the payday loan the consumer has to fill out the online application from (in some cases to fax it) with the requested personal information, bank account numbers, social security number (for the USA customers) and employer information. Some lenders require the bank statement for the last 30 days, copy of the most current pay stub and the copy of personal check, marked Void. Upon the approval that sometimes can take from several minutes upon sending the requested information to couple hours money would be electronically deposited directly to borrower's checking account (some lenders offer the overnight transfer)

The other option of online loans available today is Cash loan.  The online cash loans can be determined as the product of short-term market fund, identical to instant loans, payday loans etc. It is usually availed to satisfy small and immediate needs. Generally the financial institution providing cash loans don't take into consideration the credit score of the borrower and being a short tem loan, the lenders don't ask for any sort of collateral. Usually, the lender would ask for postdated check as a security base for it. Those postdated checks would include the amount being borrowed and interest charged on it.  In difference to payday loans the term of online cash loans may vary from two-tree weeks to up to a month. As per described here above the online cash is regarded as unsecured loan and, therefore, the lender would charge you a high interest rate as well.

We wouldn't stop on the revising the options of the personal, business, home equity and auto loans offered by the traditional banks as an additional option to online banking services as it is a common and well-known thing.

Some of the financial institutes offer digital (online) cash or e-cash.  Some critics consider digital cash as a privately issued currency like MS-cash, issued by Microsoft and available to users as well as in from of loans provided the payment of products and services in Microsoft web. The main characteristic of cash is intractability that keeps the transaction anonymous. In order to achieve that on the Internet, it was used the encryption technology 128-bit algorithm is the encryption level used by AOL's banking center ( it's also the highest level of security allowed by US law). The higher the number of the bits in an algorithm, the more sophisticated the encryption.

The mechanism in this system is similar to electronic check, but prevents banks from knowing who bought what.  There are two different options of getting the digital cash. By the first scenario the user opens an account at the bank on the Internet and transfers certain funds to the opened account. After that the customer asks the bank to issue a certain amount of digital cash, that is fulfilled using the encryption technology and than the issued amount of the digital cash is deducted from the customer's account. For the trustful customers, from the banks' point of view, some banks can offer the digital cash loans. So the borrowed amounts would exceed the amount of real money deposited and available in the accounts of such banks.  The content of digital cash is the combination of two huger integers connected by a special mathematical relation. No other person but the bank can produce the data with the same relation, because the calculation for it would take am infinite amount of time unless you know the secret key. Using the digital cash means that bank calculates these two integers and sends them to user. When the customer would like to pay with digital cash, he would transfer this data to sender. The receiver sends this data to the bank to confirm it. If the bank confirms it, the bank credits the receiver's bank account by that amount or issues another digital cash in the same amount. Note that the bank can confirm only that this digital cash is surely issued by the bank and that this data is not double spent. The bank can't know who used the digital cash, as long as users do not use it twice.

The digital cash is mostly used for the businesses involved in online sales and despite the obvious high level of security the inconvenience of opening account and downloading software has dominated all possible advantages. In several sources some financial experts propose e-gold or smartcards as the alternative to digital money, however, neither one had received critical mass of users.

Throughout all available options of the Internet lenders we would also mention PayPal that offers not only online payment solutions but has introduced the micro-lending option allowing you to lend the money to any needed person charging an interest and determining the interest rate and term of micro-loan you as lender are willing to provide and the type of money you would like to receive back as the payment (in some offers it was e-gold, PayPal money, moneybookers and etc). This practice is usually popular between the PayPal account holders, however, sometime you might notice the requests from the users of the countries that are not currently supported by PayPal payment system. Usually, PayPal would charge you with the insignificant fees for that type of transactions.  Also, by sailing on the Internet you might find in blogs the feedbacks stating that PayPal by itself is offering the loans to the customers using the Paypal as the payment platform in their businesses. Generally, the amount of the loan, the interest rate (somewhere about 12.9% APR) and terms would  depends either you are a verified customer or not, of the location of your business and your current business activities, amount of money transferred by the mean of Paypal and your reputation as the seller (number of chargeback's, credit history, investigation over the fraud suspecting money and etc).

As you may see the expansion, dynamics, trans-nationality of businesses require the financial institutes to meet the new demand by offering in increasing number the online payment products and the potential substitutes for the paper money used in the real world. Some financial analysts predicting a bright future for the digital cash proposing to develop the trans-national currency called "e$", so the cyberspace could obtain monetary independence to money and to strengthen the transnational character of online trade.

Natalia, reporter of Ecommerce Journal