Credit Score and Student Loans

[bitteeinbit]

Ok so I have $6000 in student loans. I was going to repay it full when I finish my studies in May, but I've since realized that I could do with the money since interest rates are low. From what I've read, interest for the first 6 months is 3.5%, thereafter they will be... 3.5%! Given such a low interest rate and that I could use the money elsewhere for a project I have, my goal is to repay only the interest for the first 6 months (which is allowed), then only pay as little as possible for the remainder.

I'm calling my bank tomorrow to confirm this. Because the provincial gov covers the interest while you have the loan (which is attached to your bank) and then it transfers on to your bank. But interest rates are low for student loans and interest is deductible as well. So before someone says its morally wrong, well the loan is technically given (and repayable) to my bank so it's not like I'm screwing "the system" and interests are at an all-time low anyways.

My question is this: would paying the minimal amount on a student loan (or any loan for that matter) negatively affect my credit score? My credit score is perfect (or rather, as good as they get) so I don't want to ruin it over something so stupid. I've never had to pay interest on anything (CC always paid off). Would paying interest lower y score, or actually attract lenders (figuring they can finally start making $$$ off of me)?

Thanks

[Super_Geo]

1) Your credit score is only hurt if you miss payments (or don't pay the minimum), otherwise there is no difference between paying off a debt in full vs. making a minimum payment and carrying a balance, EXCEPT

2) Your credit utilization is also a metric. So if you have $100k of available credit and you carry $6k for years, no one will care. If you have $7k of available credit and you carry $6k for any extended period of time (months, even), your high credit utilization ratio will hurt your credit score.

[lint]

are you sure it's 3.5% and not P+3.5%?

[roopi]

Originally posted by lint
are you sure it's 3.5% and not P+3.5%?

Just found some details on this:

What are the interest rates?
The interest rate for your Alberta Student Loan is a floating rate of the prime rate . At any time, you may request interest be calculated at a fixed rate not to exceed the prime rate plus 2%.

The interest rate for your Canada Student Loan is a floating rate of prime rate plus 2.5% or fixed rate of prime plus 5%. At any time, you may request interest be calculated at a fixed rate of prime plus 5%.

If you change from a floating rate to a fixed rate , you cannot revert back to a floating rate.


Source:
https://www.edulinx.ca/ABDLWeb/En/EntranceLoanRepay.aspx#whatrate

[Masked Bandit]

$6000 is such a small amount of debt, why would you want that hanging over your head? Just pay it off and move on.

[bitteeinbit]

Originally posted by Super_Geo
2) Your credit utilization is also a metric. So if you have $100k of available credit and you carry $6k for years, no one will care. If you have $7k of available credit and you carry $6k for any extended period of time (months, even), your high credit utilization ratio will hurt your credit score.
What determines my available credit? Is it my total potential credit (meaning what banks would be willing to loan me given my income) or whatever amount of "unused" credit I currently have? Say for example my CC has a 5k limit, unused, and I have a LOC which is also unused. Then they would do 6k/20k (or whatever amount of credit I'm entitled to)? So that would be more acceptable if I understand correctly?


$6000 is such a small amount of debt, why would you want that hanging over your head? Just pay it off and move on.
Well, 6k isn't much but I have other plans (travel, investments etc). So 6k @ 3.5% variable (but that probably won't change for another 2 years I figure) is a joke. It's like 210$ (+insurance I guess) but those interest expenses are TAX DEDUCTIBLE anyways (17-23%). So I might as well stretch it out while I can and invest it somewhere.

[Disoblige]

Am I missing something here?

When you apply for student loans, isn't -most- of it coming from Canada Student Loans and not EDULINX (Alberta)?

Which means, as of March 2011, the interest rate was 5.5% for the floating rate and 8% for the fixed rate for Canada Student Loans.

[bitteeinbit]

I think it goes by province. The loan is given out by your financial institution, but approved (according to your needs etc) by the provincial gov. While you're studying the gov. pays the interest from the loan. Afterwards it's up to you, but the loan was taken out from a bank and not from the gov. I'm in Quebec btw but I'm assuming it's similar in Alberta.

[CapnCrunch]

There's nothing wrong with what your doing. It's just not smart financially.

It won't hurt your credit, in fact if you take the full term to pay it back, it might be better for your score.

Life changes fast, especially at your age. (Assuming your a young person out of university.)

[BrknFngrs]

You're not talking about a student line of credit through a bank are you? I don't remember my government funded student loans being held by a bank; unless maybe it's different in Quebec.

[bitteeinbit]

Originally posted by CapnCrunch
There's nothing wrong with what your doing. It's just not smart financially.
How is it not financially smart? I'm just planning on using the loan as leverage. It's at 3.5% but all interest is tax deductible, so the 3.5% is actually even lower. If I can get a return of 6-10% on it (as part of a larger investment) I would come out a winner. So I don't see what the problem is.


Also, I'm not talking about a student LOC but an actual student-government loan. The gov. essentially pays your interest for the duration of your studies and interest rates cannot be too high afterwards (banks can only charge prime+0.5). Again, this might be different in Alb.



Anyways, thanks for the info and replies. It answered my question so at least I know my credit won't be hurt from it.

[CanmoreOrLess]

Pay off the loan now, I get tired of hearing people complain about missed payments (so called accidental and otherwise). Get that monkey off your back while you can.

Investments tend to fuck up when you really need them to come through, especially when you are chasing a 10% return.