April 19, 2011

754 words 4 mins read

ING Line of Credit

Recently, I received an (unsolicited) email from ING Direct advertising “[my] Orange Loan Account Invitation”. As someone who has a credit card slash has ever applied for a credit card, I am used to getting unsolicited offers. With traditional Brick & Mortar based banks/credit cards I expect to receive an offer for some new “service” 1D4 times per month, and some “convenience checks” (aka blank checks they send you that come with finance charges and reside on your credit card) every 1D4 months. I actually used a convenience check to buy my first motorcycle; the dealership didn’t want to take a credit card, so I wrote them a convenience check. I actually like these checks, as they offer a way to get a better interest rate (and have a higher limit) on Cash Advances from your Credit Card. However, as I mentioned before there is a finance charge associated with said device. On the last set I received, the fee was “Either $5 or 4% of the amount of each transaction, whichever is greater.”

When I first used one of these convenience checks, I wasn’t paying a terrible amount of attention to this detail. Going back to the example of my motorcycle, which cost approximately $4000, 4% of which is much greater than $5 ($160 to be exact). Given all the other fees I had to pay relating to this purchase it wasn’t a big deal, but it is something you should keep in mind.

What is a Line of Credit?

The first time I became aware of this financial instrument was several years ago when a friend of mine opened up a line of credit and used it to purchase a car. I didn’t understand why he used a line of credit rather than getting an auto-loan, but he assured me this was a much better solution and schooled me on what exactly a line of credit is. I don’t know if it was a better idea, but he seemed quite convinced.

A line of credit is similar to a credit card, in that it is a type of revolving credit with a minimum payment, but it is really made for Cash Advances, which for some reason credit cards (which are really made to facilitate purchases) discourage. The other major difference is that with your credit card you have a “grace period” within which, if you fully pay your balance, you are charged no interest; with a line of credit, you have no such thing (or such thing is much shorter). Interest starts applying almost immediately after the charge is processed.

You could think of your line of credit as your own personal loan shark; it will happily float you a loan, let you pay the minimum amount for several months, and sit back and let interest accrue. Of course you don’t have to let it be that way. You can (and should) use your line of credit only for very short-term loans (as in a few days before pay day/whenever you will be able to pay it off).

Back to ING! Being that I am currently quite pleased with them, and there was no annual fee as part of the arrangement, I decided to try it out and open up a line of credit. It was a fairly quick (and painless) process. Just the standard questions about where I work and how much I make and then I was done and found out how much credit they were giving me. I was slightly annoyed that this amount wasn’t disclosed up front, but they probably don’t run the full credit check until you decide to actually open an account — no need to spend the money on a credit check if the target isn’t going to move forward. Afterward, I harassed Jon and he signed up as well.

If you are interested in this, you can sign up here: http://ingdirect.com/orangeloaninvitation

NOTE: You will have to sign in immediately, as it (obviously) is accessing your account as part of the sign up process.

Fine Print: The Line of Credit is a “use it or lose it” situation. If you don’t use it for 18 months, they will automatically close the line.
Further Fine Print: The terms mentioned above were accurate for when Jon and I signed up and specifically to our accounts. We cannot offer any guarantee that they will be the same when you sign up; as always you should read the Terms & Conditions before signing up for any Credit Card/Loan/Mortgage/Financial Instrument.