Personal Finance

My Bank Gave Me A LOC Today...Im Not Impressed

  • Last Updated:
  • Jan 21st, 2014 12:08 pm
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Feb 15, 2008
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Thalo wrote:
Dec 31st, 2013 2:35 am
You've discovered the bank's business model.
Exactly. Anyone can become a 'bank' if they want. Anyone who borrows money and invests money is effectively acting as a bank.

Its always so fun to explain the facts of life to the conspiracy theorists who think that retail banks actually have a sort of exorbitant or special privilege in society that allows them to conduct their 'banking' activities to the exclusion of competitors.
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:
Dec 30th, 2013 6:07 pm
Sure, and you are investing it. You sell $10k of stocks (assume the motorcycle costs $10k), buy the motorcycle with the stock proceeds. And then borrow $10k to repurchase the stocks. Voila, the money borrowed is invested in stocks, and thus, is eligible for tax deductibility of interest.
Wow Mark77 you are a financial guru maybe you will give me tips come income tax time. My co-worker just got a brand new F-150 pick-up truck, I asked him how much it costed him and he told me that only $56 a month?? He said something about re-mortgaging his house and throwing the truck into the fray, do you know what the hell is this guy talking about? I mean this guy drives a new truck for only $56 a month.
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I think the guy is pulling your leg at an extra $56/m. even over 25 years it comes out to under $20k. Tossing your vehicle loan in with your mortgage is a terrible idea. Why would you finance a car for 20+years at 5%?


Do manulife one accounts still exist?
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Gammatron wrote:
Dec 31st, 2013 9:35 am
Wow Mark77 you are a financial guru maybe you will give me tips come income tax time. My co-worker just got a brand new F-150 pick-up truck, I asked him how much it costed him and he told me that only $56 a month?? He said something about re-mortgaging his house and throwing the truck into the fray, do you know what the hell is this guy talking about? I mean this guy drives a new truck for only $56 a month.
Hmmmm, $25,000 @ Prime (ie: 3%) sounds about right. I suspect he's not including depreciation, nor any insurance, etc. in his 'math'. Unlikely he's telling the complete and full truth. Although its no lie that the cost of finance is very low these days especially on RE-secured lending.
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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starboy869 wrote:
Dec 31st, 2013 10:25 am
Tossing your vehicle loan in with your mortgage is a terrible idea. Why would you finance a car for 20+years at 5%?
Why is it a terrible idea? By securing the loan with something solid (in this case, a mortgage), the finance expense is reduced. Certainly the less interest payable, the better over the long run.
Do manulife one accounts still exist?
Of course they do! My chief criticism is that the Manulife One product is fairly expensive, compared to the alternatives. But the principle, of not irrationally having a whole pile of different obligations, and a pile of savings sitting around, is quite rational.
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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Gammatron wrote:
Dec 31st, 2013 9:35 am
Wow Mark77 you are a financial guru maybe you will give me tips come income tax time. My co-worker just got a brand new F-150 pick-up truck, I asked him how much it costed him and he told me that only $56 a month?? He said something about re-mortgaging his house and throwing the truck into the fray, do you know what the hell is this guy talking about? I mean this guy drives a new truck for only $56 a month.
$56/mo is the interest he pays on what he owes. He isn't actually paying for the truck.

There are two type of LOCs

ULOC, which I believe is what you have: not secured by an asset, higher interest rate (less than 6% is very good), requires repayment of interest+ principal in the same way as a credit card at 3% of the balance each month.

SLOC or HELOC: Secured by an asset (investment or house respectively) and only requires interest to be paid at minimum each month. You are of course expected to eventually pay back principal at some point if you want to remove the lien against your asset. Your buddy can go about paying interest as long as he wants, but if he wants to retire debt free and maybe at some point be the sole owner of his home then he needs to pay back principal too. Easier to pay a little bit each month than a big chunk at once.
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
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Dec 26, 2013
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Thalo wrote:
Dec 31st, 2013 11:16 am

ULOC, which I believe is what you have: not secured by an asset, higher interest rate (less than 6% is very good), requires repayment of interest+ principal in the same way as a credit card at 3% of the balance each month.
False, you can have interest only unsecured lines of credit.
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Mindfulmonkey wrote:
Dec 31st, 2013 1:35 pm
False, you can have interest only unsecured lines of credit.
Yeah not sure why he said that. As I wrote earlier, I personally have an interest-only ULOC with the bank that Thalo has claimed to work for in the past. I used to be required to make a 3% principal payment, but they sent me a letter a few years ago waiving that requirement and only requiring interest.
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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U need a loc that has interest only minimum payments. Scotia and rbc as far as I know have these.
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sirex wrote:
Dec 31st, 2013 11:30 pm
U need a loc that has interest only minimum payments. Scotia and rbc as far as I know have these.
PCF (possible CIBC) has no minimum payment either. Ops' rate is not good but also not bad. Which bank was it? TD is generally bad.

The best ULOC I ever got was from Scotia, P+0.5%. The even better was from credit unions, P+0% for $30K.

This whole credit scoring thing is artificial, works both ways, banks mislead themselves with it too. But generally banks only want to lend you money when you need the least and take it away when you needed the most.

I would prefer ULOC to finance (provided I am buying a productive tool) over other form of financing unless dealer is providing at substantial low lease rate. IMO it's self evident LOC is superior in terms of flexibility and I am sure someone else can explain better.
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Mark77 wrote:
Dec 31st, 2013 2:15 pm
Yeah not sure why he said that. As I wrote earlier, I personally have an interest-only ULOC with the bank that Thalo has claimed to work for in the past. I used to be required to make a 3% principal payment, but they sent me a letter a few years ago waiving that requirement and only requiring interest.
Such a product didn't exist when I worked for TDCT, maybe you have some kind of special arrangement? I know I also neglected to mention Student LOCs, but that's beside the point. Point is generally on a ULOC you pay 3% per month P+I; bank took a risk lending the money to you and wants you to pay it back on some sort of schedule. SLOC/HELOC can be interest only and up to the customer how much they want to pay back and when; bank has collateral and would rather you keep paying interest as long as possible.
Money Smarts Blog wrote:
Nov 29th, 2010 11:18 am
I agree with the previous posters, especially Thalo. {And} Thalo's advice is spot on.
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Thalo wrote:
Jan 1st, 2014 2:18 am
Such a product didn't exist when I worked for TDCT, maybe you have some kind of special arrangement?
It was about 3 years ago that they sent me the letter, IIRC. Maybe its not an explicit product issued out of the branch, but rather, something that head office decides to offer to people with equity > 0 with TD and impeccable payment performance (which I most certainly have, my retirement registered account being there in e-Series funds and a significant multiple of the available ULOC amount!).
I know I also neglected to mention Student LOCs, but that's beside the point.
Yeah definitely not a student LOC.
Point is generally on a ULOC you pay 3% per month P+I; bank took a risk lending the money to you and wants you to pay it back on some sort of schedule.
If they have enough of my assets and I'm effectively using it as investment leverage, what does it matter to the bank? Although technically they are not capable of seizing RRSPs, are they? Does the bank have the right of set-off against RRSPs held with them, even though RRSPs are, theoretically, creditor-protected? Just a question -- I honestly have never researched such!!
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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Our LOC (unsecured) is interest only. I guess it's how much the bank trusts you... We like our banker, she knows my wife's family.. Not sure.

Rate could be better though! Har. Hopefully getting that fixed after tax time.
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Actually you could just pay the min. and immediately borrow the minimum you just paid.

Banks gets you this way because people ended up paying overdraft in their chequeing account too...another story altogether.
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It has nothing to do with the bank liking you and all about you being informed and a smart consumer.

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