The Pros and Cons of an Online Line of Credit
Published on June 18th, 2019 by CreditFresh
Is an online line of credit too good to be true? An online line of credit allows you to apply for a line of credit from the comfort of your own home. If approved and you request funds, you can usually get your money as soon as the next business day. This can all be done with a fraction of the effort and avoiding the inconvenience of getting a personal line of credit through a major bank.
But there has to be a catch or trade-off, right? Will an online application process be safe, or will I be putting myself in danger?
There are pros and cons to any type of borrowing, so you shouldn’t make blanket statements or assumptions when trying to make this major financial decision.
So, today we are going to explore some of the pros and cons of an online line of credit to help you make an informed decision on whether or not it’s right for your needs.
Keep in mind, a person’s financial situation is unique to that person; as such, what might be good for one person may be less than ideal for somebody else. Also, online line of credit providers/lenders are not the same, each having their own strengths and weaknesses.
An Online Line of Credit
Before diving into the pros and cons of an online loan, let’s take a look at some of the important factors involved.
You may not always have money saved away for emergencies, so having access to a line of credit to use as a safety net could help you prepare for unplanned expenses.
Without a safety net, you may be vulnerable to life’s unexpected surprises that can cost you a lot of money. This can include anything from the need for sudden car or home repairs, emergency medical care, or unexpected veterinary bills. All of those things can come with little to no warning and they can’t be put on hold just because you don’t have enough savings.
However, if you get an online line of credit, you may be in a better position to deal with these expenses without having to make big cutbacks or difficult financial decisions.
What is a Hard Credit Check?
When applying for an in-person loan through a bank, they’ll typically look at your credit score and your credit history. This is called a “hard check,” because their inquiry is recorded on your credit record and it may actually impact your score, which is why you are required to authorize a hard check.
Multiple hard inquiries on your credit report can reduce your FICO score by as much as 5 points (or less) and their inquiry may remain for as long as 5 years. Some online lenders will also run a hard check on your credit, which is not ideal. If you’re looking at an online lender, you may already have damaged credit and taking your score down a few points is not the direction you’re looking to go.
This is why you need to be careful and strategic when applying for credit of any sort, especially when you’re looking to rebuild your credit.
However, FICO will grant you an exception when you’re ‘rate shopping’ for something like a student loan, an auto loan, or a mortgage. Your FICO score will see all inquiries for a mortgage, an auto loan or a student loan as a single credit inquiry, as long as they’re all within 45 days.
What is a Soft Credit Check?
When you’re looking to apply for an online loan, some institutions will perform what is called a soft credit check. What is a soft check or “soft pull?” Chances are you’ve had a number of them done without even knowing about it. You don’t need to authorize them, and the inquiries are not recorded in your credit history.
Your credit card company may perform one to see if you qualify for their new promotion or card. An employer may perform one before or after a job interview to learn more about you.
These pulls contain information such as your:
- Past or existing loans or lines of credit
- Your payment history on your credit cards
- Any collections accounts
Also, up until very recently, any tax liens or other civil judgments would show up on your record report.
If you check your own credit, this is considered a soft check, which is why many experts will encourage you to take advantage of your ability to check for free once a year, particularly if you’re trying to improve your credit.
Pro: The Convenience of Not Having to Apply in Person
This is certainly a major selling point for a lot of people. First of all, it’s appealing if you live far from your bank. If you’re in a major city center, your bank could be a long transit ride away from your home. Or maybe you live just outside the city and making your way into town to the bank can be a bit of a chore.
This could also be appealing to people with mobility issues, who can’t drive a car or take transit as easily as other people. The ability to go through this entire process from the comfort of their own home may be a major plus.
Regardless of where you live or whether you may have mobility issues, going all the way to the bank to apply for a line of credit can be a chore for just about anybody. You might try to do it over a slightly extended lunch hour, or you might have to take the day off work completely to go in person.
On the other hand, if you apply for an online line of credit, you don’t have to worry about getting to the bank during business hours. You can generally apply seven days a week, 24 hours a day, from the comfort of your own laptop, tablet, or smartphone.
Pro: Faster Turnaround Times
It’s very difficult to say exactly how long it will take to secure a line of credit in-person, at a bank. It often depends on each individual bank – and sometimes even the individual branch – but the process can be slowed by many things, such as:
- The branch’s hours of business
- Having to wait for an available appointment
- Finding the time in your schedule to go to the bank
Additionally, the type of loan you’re applying for will play a role in the length of time the application process takes. For example, if you were to apply for a home equity line of credit (HELOC), the process could be considerably longer and have additional requirements. A HELOC uses the equity of your home as collateral, so the process may require more information and be more extensive. You could be looking at 30- 45 days to get approved for a HELOC.
Pro: A Higher Probability of Getting Approved For an Online Line of Credit
An online line of credit provider may be more willing to work with a consumer who has ‘damaged’ or ‘less-than-perfect credit’.
When applying for a traditional bank loan in person, there’ll often be more stringent when determining who is a risky borrower. They generally conduct a hard credit check and they’ve got a hard cut-off point of the types of consumers they are willing to accept.
For a traditional bank loan, you will typically need a credit score of 680 or higher. Your bank may also look at other factors such as:
- Your history with them (how long you’ve been with them and how many products you have)
- Your employment situation and history
- Any assets you may own
However, if you get an online line of credit that’s meant to be accessible to people with poor credit, they could potentially be more likely to work with you and/or make you an offer.
Con: A Lack of Customer Service
Customer service may not always be at the top of your list when looking for a suitable credit product until you’ve had bad service.
Some of the most popular customer service complaints you will read online when researching online lending services include:
- Having to provide too much information to apply
- Being declined after being promised acceptance
- "Surprise" fees and charges, with too much “fine print” about the price structures
- Long wait times for replies to questions
These situations can be understandably frustrating which is why it’s important that you work with a someone that takes extra pride in the level of service they provide their clients. The CreditFresh Line of Credit by CBW Bank’s customer service philosophy includes:
- A simple request process
- Never making promises that can’t be kept
- Transparent communication about charges
- Prompt responses and customer service support
Con: Safety Concerns
Any time you’re applying for credit online, you want to be sure you’re working with a reputable company to protect yourself at all times.
Unfortunately, the reality is that we live in a world where online scams are a very real problem, including fraudsters offering online loans and lines of credit as bait. Americans were defrauded of $905 million in 2017, according to the Federal Trade Commission’s annual report of the top U.S. consumer complaints.
The CreditFresh Line of Credit is provided by a name you can trust: CBW Bank, a state-chartered bank that is FDIC insured.
See How a Line of Credit May Help Your Situation
A CreditFresh Line of Credit by CBW Bank may act as a safety net. The process to request this Line of Credit is simple, quick, and completely transparent, with clear terms and no unexpected or hidden fees.
Lines of Credit range from $500 - $2,500. Click here to get started.