Personal Finance

Line of Credit Interest Rate

  • Last Updated:
  • Nov 9th, 2013 6:13 pm
[OP]
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Feb 13, 2012
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Line of Credit Interest Rate

I'm planning to buy used car ($15k max). Went to my bank (RBC) to see what kind of loan I can get. Much to my surprise, they suggested I use LoC. Now, my current LoC interest rate is lower than their fixed loan. My question for knowledgeable members here is whether LoC interest rate will change over time? I don't want to see them jack up the rate as soon as I draw out thousands of dollars. (My plan is to repay the loan in 3 years.)
Thanks.
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Dec 14, 2008
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I believe most line of credits are fixed to bank prime. So if bank prime rises, your interest rate will rise.
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Borrowing costs on unsecured LOC's can definitely increase, as they can on even secured LOCs (ie: HELOCs). The likelihood depends heavily upon your credit metrics. People with HELOCs and minimal home equity, for instance, have a substantially greater chance of having the interest rate rise as house prices continue to drop, than those who have only a minimal draw and a high amount of home equity.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mar 24, 2008
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Mark77 wrote:
Nov 9th, 2013 2:06 pm
Borrowing costs on unsecured LOC's can definitely increase, as they can on even secured LOCs (ie: HELOCs). The likelihood depends heavily upon your credit metrics. People with HELOCs and minimal home equity, for instance, have a substantially greater chance of having the interest rate rise as house prices may drop, than those who have only a minimal draw and a high amount of home equity.
There, fixed that for you.
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ksgill wrote:
Nov 9th, 2013 2:11 pm
There, fixed that for you.
Nope, didn't need fixing. The first iteration is correct. As equity recedes, credit-worthiness drops.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote:
Nov 9th, 2013 2:13 pm
Nope, didn't need fixing. The first iteration is correct. As equity recedes, credit-worthiness drops.
"As house prices continue to drop" ==> Source? Housing prices are not continually dropping.
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stinkyicecube wrote:
Nov 9th, 2013 1:50 pm
I'm planning to buy used car ($15k max). Went to my bank (RBC) to see what kind of loan I can get. Much to my surprise, they suggested I use LoC. Now, my current LoC interest rate is lower than their fixed loan. My question for knowledgeable members here is whether LoC interest rate will change over time? I don't want to see them jack up the rate as soon as I draw out thousands of dollars. (My plan is to repay the loan in 3 years.)
Thanks.
Banks have many credit products directed at all kinds of financial needs of the consumer. A LOC(if quaified) will definitely have lower rates than a 'personal' loan and definitely be lower than its own captive supporting automotive finance arms.
Your LOC can be structured a few different ways. The rate won't change if your LOC is secured against the auto. A secured auto LOC may even be a approx half point lower than a unsecured LOC. Check with your institution for details as what I'm stating is normal policy at most FI's.
Furthemore a secured LOC is indeed a 'fixed loan' but with the benefit of a lower LOC qualifier rate due to your creditworthiness.
Secured auto LOC's also fore-go a couple security underwriting policies than are normal rules for auto financing. Age of car, cap cost and finance term rarely become factors on secured LOC's.
Most if not all personal and/or auto loans will cap the age of vehicle to 5yrs-7yrs max(most at 5yrs) which means if your selected auto is 6yrs old the banks will not advance funding on it. With a secured LOC that would not matter as the underwriting is different. Same policy rules with term.
Best to enquire at your FI for specific details and how they treat secured LOC's and their rate differences. Every FI will have slight variances.

Lastly, do not listen to that Mark dude, This is yet another forum thread where he tries so desperately to convert and/or change topics to his propagandist housing/pricing verbiage.
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
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Another thread that Mark77 successfully derails with his non stop bubble monger apocalyptic agenda.
Andre Oliveira - Mortgage Agent
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[OP]
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Feb 13, 2012
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Thank you all.
kryton619 wrote:
Nov 9th, 2013 1:55 pm
I believe most line of credits are fixed to bank prime. So if bank prime rises, your interest rate will rise.
Just to clarify: LoC rate isn't equal to prime but it is tied? And fluctuations follow the same percentage point?
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stinkyicecube wrote:
Nov 9th, 2013 4:34 pm
Thank you all.


Just to clarify: LoC rate isn't equal to prime but it is tied? And fluctuations follow the same percentage point?
It can be and may be parallel in performance. Secured LOC is your best solution
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
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laptop-tech wrote:
Nov 9th, 2013 4:28 pm
Another thread that Mark77 successfully derails with his non stop bubble monger apocalyptic agenda.
Someone can make a thread about banana prices and somehow Mark will come in and try to correlate that to housing prices.
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
[OP]
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Additional detail: rate for secured and unsecured LoC is tied to prime and will fluctuate for both. (for reference only)
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stinkyicecube wrote:
Nov 9th, 2013 4:49 pm
Additional detail: rate for secured and unsecured LoC is tied to prime and will fluctuate for both. (for reference only)
It might be tied to prime, however the premium over prime is never guaranteed for life. Most lenders today offer Helocs at prime +.50%, so as prime goes up and down the rate will always be whatevernewprime is plus 0.50%.. but the lenders still have the right to increase that 0.50% to 1% or more. Given the current state of the economy, this is unlikely to happen in the short time frame (few years) but people should not count on that as a guaranteed thing for life.

Another reminder : prime is NOT set by the Boc.the Boc sets monetary policy and the overnight rate, which banks use as a reference and add a premium to, in order to determine the prime rate. Although the prime rate is often considered a single rate, each bank has the right to determine their own prime rate. In the past, there were cases where certain lenders set their own prime rates slightly different than some of the other lenders.
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Mar 18, 2012
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Just as a note we have used LOC for vehicles before much better than a 'car' loan if you are responsible.
You can generally haggle about the rate you get on a LOC. So if you have the time you can shop around a bit. Keep in mind that this will cause a few hits to your credit rating but if that is good it shouldn't be an issue.

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