How does a line of credit work

[b_t]

I want to start building up my credit rating but want to avoid a credit card if at all possible. A line of credit seems to be the next best choice, and I'm going in on saturday to talk with my banker about something like that, but I want to have a general idea of what to expect before I go in there.

my understanding is, it shows up as an extra account in my online banking, I move money from it into my regular account to spend it, and then I pay a fee, interest, and the money owing on the portion I have withdrawn?

I'm not going to use it to buy anything that holds its value really well, probably a lot of shit for my car and a new comp. a loan would be better, but it sounds like a line of credit has more flexible options for how much I use and how I repay it. Should I seriously consider a loan instead?

[Thaco]

it's essentially used like a credit card, you can withdraw or deposit funds to it any time, you get charged monthly on the balance owing.

[Stephen81]

I've never had one, but from what I've heard the interest rate on a line of credit makes it more feasible to hold a balance on it. I was under the impression that you would NEED a credit history to get a line of credit from your bank but I could be wrong. I also didn't think that line of credits had minimum monthly payments.

[b_t]

Originally posted by Thaco
it's essentially used like a credit card, you can withdraw or deposit funds to it any time, you get charged monthly on the balance owing.

whats the interest on it like? I would guess it fits between a credit card and a loan, Scotiabank says it could be as low as prime, but could I even expect anything under 10%?

[Stephen81]

Unless you have a low interest credit card, it would have to be lower than the interest you'd typically be paying (ie. 18-20%) on a credit card. my AMEX interest is about 11% and it suits me just fine :D

[Thaco]

depends on your credit rating, i have a bit of debt (but i make my payments) and they gave me one for $11,000 @ prime + 3.2% so as of right now it's at 9.2%


Oh and repayment is 2% per month


(ingdirect)

[danno]

my credit card is 18% but i barely use it, my line of credit is 8 or 9%.

i think you will need credit history to get one.

[DC2]

with a PLC you can make it any account you want. as in your chequeing, savings or an other account. Usually once you get approved for a PLC it doesnt go dormant.

you need good credit and i depending on what bank, you need to be making more than X amount of dollars a year, and have the paystubs to prove it.

[Thaco]

yeah, most banks require you to make $30k a year before they'll even loook at you for a PLC

[Crymson]

Also, if you carry a balance on yoru credit card, you'll see your "balance protection" which like your death and disability insurance on your CC be close to the same size as your minimum monthly payment.

On a line of credit, that same protection is only a fraction of what it would be if you carried the same balance on your credit card.

[asuth077]

Originally posted by danno


i think you will need credit history to get one.

Or a good co-signer, becuase it is considered to be "revolving" credit, meaning you can take debt and repay it over and over, they want you to have decen credit.

But if you are a student the student lines are a good choice.

[88CRXGUY]

Every bank is different. I had a credit card for 2 and a half years before they gave me a credit line. The interest rate is about 8 percent right now. They are going to go by how much money you make, if you have anthing saved or assets, how long you've been at your job for and how long you've been with your bank. etc etc.

I know that you don't want to get a credit card but there are some cards that you can get interest free on them if you pay the balence in full every month.

The PLC is like a revolving door you take money out, and you put money back when you want. They are going to want you to make a minium payment(example 100 bucks) thats to cover the interest and put something towards the princiable(total outstanding balance). I know with my bank that I make a minuim payment of the interest, everything is fine.

Its not upto the bank that makes the decision its upto the Credit Breau Of Canada that makes the overall decision, if they want to take a risk or not.

[broken_legs]

With TD I had a student line of credit which was Prime +1% i believe... I had an $8,000 dollar limit when I was a fulltime student and it iwas a revolving account. 6 months after I was done my studies they froze the account so I opned up a PLC.

They gave me the same 8,000 dollar limit even though I had 6,500 outstanding in my student LOC still. The interest rate is Prime +4-5% and it is revolving.

Earlier this year I went into TD again to ask about LOCs and mortgages. They wont lower the interest rate unless i take out a bigger LOC. 15,000 LOC would be Prime +2 and a 25,000 LOC would be Prime +1% I believe.... Interesting how that worked out, the more money you go in debt with them for the better rate they are willing to give you.

Anyhoo, I pay off my Credit Cards Every 2-3 weeks with my PLC then pay off my PLC every paycheck. I can take my time paying back the LOC through the bank because its my bank and they know i have money, but if I missed a payment on a card id be screwed. I cant remember the exact number, but the bank requires a 3% minimum[???] payment against the balance on your LOC each month (IE you have a 8,000 PLC, and currently have it maxed out you'd have to pay a minimum of $240.00/mth)

I believe you can get a PLC @ prime if you take out a secured line of credit. This means you must actually have the cash or assets (IE Equity, holdings etc..) to pay off the credit.

[Ben]

Originally posted by broken_legs
With TD I had a student line of credit which was Prime +1% i believe... I had an $8,000 dollar limit when I was a fulltime student and it iwas a revolving account. 6 months after I was done my studies they froze the account so I opned up a PLC.

They gave me the same 8,000 dollar limit even though I had 6,500 outstanding in my student LOC still. The interest rate is Prime +4-5% and it is revolving.

Earlier this year I went into TD again to ask about LOCs and mortgages. They wont lower the interest rate unless i take out a bigger LOC. 15,000 LOC would be Prime +2 and a 25,000 LOC would be Prime +1% I believe.... Interesting how that worked out, the more money you go in debt with them for the better rate they are willing to give you.

Anyhoo, I pay off my Credit Cards Every 2-3 weeks with my PLC then pay off my PLC every paycheck. I can take my time paying back the LOC through the bank because its my bank and they know i have money, but if I missed a payment on a card id be screwed. I cant remember the exact number, but the bank requires a 3% minimum[???] payment against the balance on your LOC each month (IE you have a 8,000 PLC, and currently have it maxed out you'd have to pay a minimum of $240.00/mth)

I believe you can get a PLC @ prime if you take out a secured line of credit. This means you must actually have the cash or assets (IE Equity, holdings etc..) to pay off the credit.


This is a pretty good summary right here.

Ultimatly, qualifying for a PLC requires one of several things, and the amount you qualify for depends on how WELL you achieve them.

I'm going to exclude Student LOC's because they're different.

I'll use a nice round number like $10000.00

If you never use it, you dont pay anything. You can use it as much or as little as you want, and you can pay down as much or as little as you want depending on how good your credit is (they might put you on minimum payments like 3% of the balance), whether it's secured or not, and how much money you earn. If you have Equity, good credit, and make 50k or more per year, you can pretty much pay whatever you want on that 10k.

LOC's are awesome because you have a much lower interest rate than a credit card. You can get a lower interest rate on a flat out loan, however you dont have the flexibility on repayment like you have with an LOC. And once your loan is up, it's up, you have to go in and apply for another one.


PLC's are great, IF you can get one. 30k/yr + Steady Income + Decent Credit should get you 10 I would think.

[b_t]

Wow those last two posts were great, thanks guys.

I'm probably going to wait until next week because then I will find out if I will be spending the year as a student or working full time at 50k a year :D

What is so different about the student line of credit? My bank has zero info on them on their website.

[Pee_Sack]

I went into my bank last August to talk tot hema bout a LOC for a car. I lived at home, worked ~30 hours a week, and was a full time student. They gave me a 20 grand LOC. My interest rate fluctuates from 5-8%.

[TrevorK]

Originally posted by b_t
Wow those last two posts were great, thanks guys.

I'm probably going to wait until next week because then I will find out if I will be spending the year as a student or working full time at 50k a year :D

What is so different about the student line of credit? My bank has zero info on them on their website.

There is no difference with a "student line of credit" - the only difference is most likely the name and qualifying criteria.

At CIBC I was told you needed to make $35K to get a $10K LOC. However, if you're a student you don't make $35K, yet can still get a LOC.

[Oz-]

I currently have a LOC secured against my home equity for investment purposes. It is through CIBC and they are offering prime -1% until April 2007 if some of you are looking to move money around.

[Xtrema]

Secured: Means you have some asset to secure the loan against (usually house) would get you prime -1%

Unsecured: Means you get LOC solely based on your credit, goes anywhere from prime to prime+5% depends on your rating.

I think I got offered LOC like after working 2yr afte graduation. And they have been increaseing that amount ever since. Same with the credit cards. I now have more credits than I can paid back within a year. Lucky I don't use or rely on them.

[broken_legs]

Originally posted by TrevorK


There is no difference with a "student line of credit" - the only difference is most likely the name and qualifying criteria.

At CIBC I was told you needed to make $35K to get a $10K LOC. However, if you're a student you don't make $35K, yet can still get a LOC.

A Student LOC is better than a regular PLC. Atleast with TD...


TD offered a much better interest rate on my Student LOC and you only have to make payments on the interest, not the principal. NOt sure if this is what revolving means, but they set up my student LOC so that the payments for the LOC would actually come out of the LOC.... Neat-O! Credit to pay off credit!

[ShOwOfF]

Are you a student? Just for clarification, (TD Canada Trust) if you are f/t undergraduate student, your maximum credit limit is $8k/yr and $4k/yr if you're a p/t student. Generally, you need to have decent credit as well as a stable source of income to qualify for one on your own. It doesn't take much, so long as your debt-service ratios stay below ~42% with the newly issued credit. The interest rates on a student loc vary depending on if you're a undergrad or grad/professional student. For undergrads the interest rate is prime+1.5 and for grad/professional students it's prime +1%. The best thing with Student LOC's is that your minimum monthly payment is the interest only rather than a blended p+i payment. Good for those months where you spent your money on booze.

If you're not a student, an unsecured loc is relatively highly priced especially if your credit limit is low. Again, you do need to have a stable source of income with decent credit and your TDS ratio needs to remain below ~42%. Pricing is based on the bracket in which your credit limit falls. For anything $5k - $9999 the rate is prime + 4%, $10k - $14999 the rate is prime +3, $15k - $19999 the rate is prime+2.75, $20k - $24999 the rate is prime +2 and for any Unsecured line over $25k the rate is prime +1.5%. I may have the interest rates slightly off but you have the general idea of the tiers. You should know that an Unsecured LOC has a minimum monthly payment of 3% of the balance or $50 whichever is greater.

Home Equity Secured LOC's are priced at prime, however you need to own a home with at least 25% equity in it to qualify. Generally there are legal fee's and possible apprasials involved which are simply cost's of doing business. Minimum monthly payment for these are also interest only.

Hope that helps. If you have any questions, feel free to pm me.

[Ajay]

Wow....after reading this post this cleared up some questions I had as well and I thought I was quite informed about these things.

My question is this and I don't mean to thread jack. I have a student line of credit with BMO and for some reason they thought I graduated a few years ago even though I've sent them documentation showing them I've been in school for the last two years. They've frozen that line of credit and I'm simply paying it down.

I have a well above average credit rating, would it be smart for me to apply for a line of credit with my bank (CIBC) and use that to pay off my student line of credit? Only reason I as is because with a line of credit from my bank I can use it for other things besides school but I know the interest rate will be higher than my student line of credit (student is 6%).

[ShOwOfF]

It's completely up to you. Sounds like BMO has switched you into repayment mode, which basically freezes the account and forces you to make set monthly payments or ~3% of the balance each month. This isn't unusual, all banks do this for studentlines, but if still require a revolving source of credit then I would look into obtaining a uloc from your bank whether it be bmo, cibc, etc. Usually the institution you get the uloc from will request that the sloc at bmo be paid out with this new creditline.

A word of advice though, don't go to a whack load of institutions asking for a new uloc. That will seriously hamper your credit rating with equifax/transunion. Pick the bank that you like the best, and have them submit your app for a uloc. Only try another institution if they decline you, but even so, just be aware that all F.I. use pretty much the same approval guidelines.

Basically, its not a bad idea to get a uloc so long as you require the funds. If not, then I would suggest paying off the frozen sloc at bmo first so that you can clear your student debt before walking into another revolving facility.

[frostyda9]

Originally posted by Ajay
I have a well above average credit rating, would it be smart for me to apply for a line of credit with my bank (CIBC) and use that to pay off my student line of credit? Only reason I as is because with a line of credit from my bank I can use it for other things besides school but I know the interest rate will be higher than my student line of credit (student is 6%).

Banks barter (edit: negotiate would be a better word), just like anyone else. Talk to them and let them know the situation, and see what they can offer you. They would rather collect the interest on your balance than let someone else collect it.

[lint]

Originally posted by Ajay
Wow....after reading this post this cleared up some questions I had as well and I thought I was quite informed about these things.

My question is this and I don't mean to thread jack. I have a student line of credit with BMO and for some reason they thought I graduated a few years ago even though I've sent them documentation showing them I've been in school for the last two years. They've frozen that line of credit and I'm simply paying it down.

I have a well above average credit rating, would it be smart for me to apply for a line of credit with my bank (CIBC) and use that to pay off my student line of credit? Only reason I as is because with a line of credit from my bank I can use it for other things besides school but I know the interest rate will be higher than my student line of credit (student is 6%).

I would get them to unfreeze the student line, especially if you're still in school. The interest rate being the primary reason. Opening another LOC at a higher rate to pay down a lower rate SLOC doesn't make sense at all.

As far as using the money for other things, the bank has no say in what you can or can't use the money for. The student part means that you're a student, not that school related stuff is the only thing you can spend the money on.

[slick2404]

Say if im FT for post secondary, got a ft summer job and still have a pt job durring school, apply for a sloc and then for whatever reason dont have a job anymore. will that change anything %rate wise, or is it what they dont know wont hurt type deal.

[googe]

Originally posted by Xtrema
Secured: Means you have some asset to secure the loan against (usually house) would get you prime -1%

Unsecured: Means you get LOC solely based on your credit, goes anywhere from prime to prime+5% depends on your rating.

I think I got offered LOC like after working 2yr afte graduation. And they have been increaseing that amount ever since. Same with the credit cards. I now have more credits than I can paid back within a year. Lucky I don't use or rely on them.

which bank offers prime -1% on a secured line of credit? i know some people with good credit that have prime +1, someone else that has prime, havent found below prime though.