Personal Finance

Accept Pre-approved LOC?

  • Last Updated:
  • Oct 3rd, 2014 6:44 pm
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[OP]
Member
Apr 4, 2013
245 posts
31 upvotes
Milton

Accept Pre-approved LOC?

Hi

I received an email from TD (The bank with which I mainly bank) that I've been pre-approved for a LOC with the following details

-Upto $12,500
-TD Prime Rate + 2%
-Fixed rate of 2.99% for 1 year

I'm currently financing my car at 5.99% and my current principal balance is 10.6K. Does it make sense to accept the LOC, payoff the car loan and then put the same monthly payments I was putting towards the LOC ($329)?

There is the following fine print with regards to the fixed rate

The Fixed Rate Advantage Option must be set up by November 21, 2014. The minimum amount for the Fixed Rate Advantage Option is $2,000. The term is one year and payments can be amortized over one to five years. Any outstanding balance not part of the Fixed Rate Advantage Option will be charged interest based on the Annual Variable Interest Rate applicable to your Line of Credit. At the end of the term, the outstanding balance on the Fixed Rate Advantage Option will automatically become part of the variable rate portion of your Line of Credit. Offer maybe changed, extended and withdrawn at any time without notice.

TIA
6 replies
Sr. Member
Apr 28, 2014
675 posts
175 upvotes
Oakville, ON
sfanous wrote:
Oct 2nd, 2014 4:15 pm
Hi

I received an email from TD (The bank with which I mainly bank) that I've been pre-approved for a LOC with the following details

-Upto $12,500
-TD Prime Rate + 2%
-Fixed rate of 2.99% for 1 year

I'm currently financing my car at 5.99% and my current principal balance is 10.6K. Does it make sense to accept the LOC, payoff the car loan and then put the same monthly payments I was putting towards the LOC ($329)?

There is the following fine print with regards to the fixed rate

The Fixed Rate Advantage Option must be set up by November 21, 2014. The minimum amount for the Fixed Rate Advantage Option is $2,000. The term is one year and payments can be amortized over one to five years. Any outstanding balance not part of the Fixed Rate Advantage Option will be charged interest based on the Annual Variable Interest Rate applicable to your Line of Credit. At the end of the term, the outstanding balance on the Fixed Rate Advantage Option will automatically become part of the variable rate portion of your Line of Credit. Offer maybe changed, extended and withdrawn at any time without notice.

TIA
I'm assuming the 5.99% on the current car loan is a fixed rate.

So, the Prime Rate is 3% + 2% variance = 5% on the PLOC.

The Fixed Rate Advantage Offer is only good for one year @ 2.99%; then, it goes to the regular PLOC rate of 5%.

So, your savings for that one year could be calculated as: ($10,600 *5.99/100) - ($10,600 *2.99/100) = $318

After which, assuming Prime does not go up (because that is the risk here), the outstanding balance is being charged interest @ 5.00% vs 5.99%.

The difference in interest between 5.00% and 5.99% on a balance of 10,000 is $99.

If it's a true pre-approval offer from TD for a PLOC, I would take it regardless. The best time to take these offers is when you may not really need the credit so it's around for the unforeseen emergency when you desperately do need it.

Sure, if you put the balance of your car loan on the PLOC you may save some money in interest annually. You will pay off the car loan faster, however, as that payment for $329 monthly is being paid more towards the principal, as the interest rate is lower.

Unless you are paying interest only, the minimum monthly payment on a TD PLOC is 3% of the statement balance. $329/month should cover that.

Again, this is assuming that Prime doesn't go up in the next few years. Bank Prime Rate has been 3.00% since September 2010.
Jr. Member
Jan 2, 2009
138 posts
34 upvotes
Ontario
I also received a similar offer from TD few days ago. I'm still contemplating if I should take it or not.
If I was in your case, I would pay off the car loan @ 5.99% with TD LOC. It's a no brainer, I doubt the Bank prime rate is going to increase any time soon.
Few months ago, I paid off my Scotia Auto loan with exact same rate as yours with my CapitalOne credit card (prime + 0.9%). I was stupid not to do it earlier.
Deal Fanatic
Nov 24, 2013
5739 posts
2369 upvotes
Kingston, ON
Definitely worth taking it up. As Cerium spelled out, there's some risk to Prime going up after the low first year rate, but since you'd have about 1.5 years left on the balance at that payment at the end of the first year, the exposure is relatively small.
Deal Fanatic
Aug 27, 2004
6629 posts
211 upvotes
Toronto, ON
I've long been of the view that one should always take pre-approved LOCs (whether to use them... that's a different story). No hard hit on your credit bureau file, no need to beg some person in a branch, and unsecured personal LOCs tend to be among the hardest credit products to get, especially if you actually NEEDED the money...
Deal Addict
User avatar
Dec 27, 2006
1491 posts
152 upvotes
Toronto
Accept (or get) LOC when you don't need it. It's hard to get when you actually need it.
Member
User avatar
Nov 30, 2009
458 posts
17 upvotes
omg, guys take your pre-approved LOC's, please. They don't cost a credit hit and function as a better emergency fund vehicle than straight cash that the bank lends out at 7% that they're maybe paying you 3% at most.

You can also use them as a DP for investment real estate. As long as your cash flowing with the interest rate factored in, less of your own cash into investment property and more of the banks, better cash on cash return, but this is a different discussion for another time.

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