Is an online line of credit too good to be true? For these types of lines of credit, you typically apply from the comfort of your own home. If you’re approved, you may be able to get your money as soon as the same business day after requesting a draw, depending on the company. Also depending on the company, the process of borrowing money online can be fast, easy, and convenient.
But there has to be a catch or trade-off, right? Will an online application process be safe, or will you be putting yourself in danger?
There are pros and things to look out for with any type of borrowing, so you shouldn’t make blanket statements or assumptions when trying to make this major financial decision.
Today we are going to explore some of the pros and things to look out for with an online line of credit to help you make an informed decision on whether or not it might be right for your needs. We’re also going to discuss the differences between a hard and soft credit check and some things you may need to know about them.
Keep in mind, everyone’s financial situation is unique. As such, what might be good for one person may be less than ideal for somebody else. Also, online line of credit providers or servicers are not the same, with each having their own different qualities.
What is an Online Line of Credit?
Before diving into the pros and potential cons of an online loan, let’s look at some of the important factors involved.
You may not always have money saved away for emergencies, so applying for access to a line of credit when unplanned emergency expenses come up may act as a safety net that could help you.
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 to emergency medical care, or unexpected veterinary expenses. These things can come with little to no warning and they can’t be put on hold just because you don’t have enough savings to cover the cost.
However, if you request an online line of credit, you may be in a better position to deal with these unexpected expenses.
What is a Hard Credit Check?
Sometimes when you apply for a loan, the financial institution will 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.
According to Experian, multiple hard inquiries in a row on your credit report may reduce your FICO score by a certain number of points and the inquiry may remain for as long as approximately two years. A hard check may even be run when applying for a line of credit online, which is not ideal. Having your score be lowered by a few points may not be the direction you’re looking to go in.
This is why you need to be careful and strategic when applying for credit of any sort, especially when you’re looking to positively impact your credit score or build positive credit history.
As it is common for consumers to engage in rate shopping for a financial product like a student loan, an auto loan, or a mortgage, FICO scores take this behavior into account in its calculation. 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 a certain period of time.
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 may have 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.
Potential Benefits of Line of Credit Loans Online
Now that we’ve looked at some of the important details on an online line of credit, it’s time to go over some of their key benefits. Let’s get started!
1. The Convenience of Not Having to Apply in Person
This is certainly a major selling point for a lot of people, as it can be appealing if you live far from a financial institution. If you’re in a major city center, the financial institution 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 financial institution can be a bit of a chore.
Applying for a loan in person may require you to take a slightly extended lunch hour, or you might have to take the day off work completely.
On the other hand, if you submit a request for a line of credit online, you may not have to worry about getting to the financial institution during business hours. Some companies that offer online lines of credit allow you to apply seven days a week, 24 hours a day, from the comfort of your own laptop, tablet, or smartphone.
2. Fast Turnaround Times
It’s very difficult to say exactly how long it will take to be approved for a line of credit in person. It often depends on each financial institution — 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 financial institution
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 anywhere from two weeks to a couple months to get approved for a HELOC.
In emergency situations, you may not have time to apply for a loan in person. You may need to know if you qualify right now as you may need the money ASAP. In this situation, completing a line of credit request online may be better suited to your needs. While not the case for all financial institutions, the process of completing your request for an online line of credit may take less time than applying for one in person. In some cases, you may even receive your funds sooner than you would through an in-person loan. Keep in mind though, many financial institutions are different and the time it takes to submit your request and receive your funds will vary from one to the other.
Things to Look Out for with Line of Credit Loans Online
While there are certainly some benefits to an online line of credit, there are also some things that you’ll want to keep in mind before you start the application process. Here are two factors to consider.
1. 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 less than ideal service.
Some of the most popular customer service complaints you will read online when researching online lending services include:
- Having a lengthy application process
- “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 someone who takes extra pride in the level of service they provide their clients. Before you submit a request for a line of credit online, make sure to read reviews of the financial institution you’re considering applying for a loan with to see what other people’s experiences have been. There are plenty of financial organizations that service line of credit loans online with outstanding customer service, so keep on the lookout for them!
2. Safety Concerns
Any time you’re requesting credit online, you want to be sure you’re working with a reputable company.
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. Again, it’s important for you to make sure you do your due diligence and research financial institutions to make sure they’re responsible and take your security seriously.
Consider an Online Line of Credit in Emergency Situations
A line of credit can act as a safety net when you’re faced with emergency expenses, but it’s important that you take your time to research your potential options to find the right one for your situation. Look into the different borrowing products out there, research the financial institutions that you’re considering applying for a loan with to make sure they prioritize safety and customer service, and don’t jump into the application process without doing your due diligence!