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? For these types of lines of credit, you typically apply from the comfort of your own home. If you’re approved, may be able to get your money as soon as the next business day after requesting a draw, depending on the company. Also depending on the company, this may be done with a fraction of the effort and avoiding the inconvenience of getting a personal line of credit in person.
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 cons to 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 cons of 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, but it’s important to note that no distinction is made between the two on a subprime credit report.
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 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 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 in case unplanned emergency expenses come up.
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. 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 have 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 applying for an in-person 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.
Multiple hard inquiries in a row on your credit report may reduce your FICO score by as much as 5 points (or less) and their inquiry may remain for as long as two years. A hard check may even be run when applying for a loan 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.
However, FICO will grant you an exception when you’re rate shopping for a financial product 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 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.
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 request for an online line of credit, you may not have to worry about getting to the bank 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.
Pro: Faster 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 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.
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 than through an in-person loan. Keep in mind though, many financial institutions are different and the time it takes to submit your request and received your funds will vary from one to the other.
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 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 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 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. 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.