Personal Finance

Line of Credit or Car Loan

  • Last Updated:
  • Jul 13th, 2020 8:45 pm
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Line of Credit or Car Loan

Given the uncertainty of the line of credit (bank able to change interest rate at almost any time with advance notice and bank being able to demand full repayment of amount due), if your car loan rate was 1% higher than your line of credit rate, which would you go for?
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Nov 13, 2010
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use the LOC if you have it.
It's easier to pay down when used.
Besides, you dont give your data/info to some loan shark
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If you pay with your LOC that basically is making a cash payment to the car dealer, so I assume you can negotiate a better deal than when taking their financing.
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May 29, 2019
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I just borrowed for the first time in my life. Even though I might (key word: might) have been able to get a cheaper car loan as opposed to a LOC, the LoC has two huge advantages:
1) Flexibility: have a rough month financially? Need the cash? The LoC allows you to pay just the interest charged (in most cases). A car loan does not.
2) Future needs: my dad runs a business that requires him to buy and sell vehicles fairly regularly. He said after years of getting loans if he didn't have the cash, he switched to a LoC. That way he doesn't have to waste time applying for another loan. The bank will just get more opportunities to screw you if you don't get a LoC.

Just my two cents.
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lmcjipo wrote: your car loan rate was 1% higher than your line of credit rate, which would you go for?
What are the chances that given the current economic climate that interest rates will rise by over 1%? Virtually nil as not very likely we will get out of this coronavirus situation for at least 3 or 4 years and even than would interest rates rise that quickly. I don't see it.
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Dec 30, 2006
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Quick questions:

1.) If my LOC states - Interest Rate 5.94% *(TD Prime Rate+3.49%) - does that mean my total rate charged on any useage of the LOC would be 9.43%?

2.) Is this consider high? My parent has couple of LOC with interests rate ranging from 1.5 - 2.9. How do you get a lower rate?
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Apr 16, 2007
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lmcjipo wrote: Given the uncertainty of the line of credit (bank able to change interest rate at almost any time with advance notice and bank being able to demand full repayment of amount due), if your car loan rate was 1% higher than your line of credit rate, which would you go for?
With auto loan rates as low as they are it does not make much sense to use a personal LOC for a auto purchase.
Your LOC should be a go-to emergency fund.

I would only use the LOC if the car you are buying does not have a subsidized rate from the manufacturer and the LOC rate is better.
Lastly, and only if you don't have a lot of secured loan experience, take the dealerships finance option, keep it open for 9 months to 1 year, then take out your LOC to pay it off and then make your payments on the LOC. Two loans for one secured product.
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Jan 7, 2020
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fakejordan wrote: Quick questions:

1.) If my LOC states - Interest Rate 5.94% *(TD Prime Rate+3.49%) - does that mean my total rate charged on any useage of the LOC would be 9.43%?

2.) Is this consider high? My parent has couple of LOC with interests rate ranging from 1.5 - 2.9. How do you get a lower rate?
1. Prime is 2.45% so its Prime + 2.45% = 5.94%
2. Depends on the type of LOC. If it is secured, it could be a lot lower interest rate
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BT if your CL is high enough :twisted:
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[OP]
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WetCoastGuy wrote: What are the chances that given the current economic climate that interest rates will rise by over 1%? Virtually nil as not very likely we will get out of this coronavirus situation for at least 3 or 4 years and even than would interest rates rise that quickly. I don't see it.
I'm not worried about the interest rate (i.e. prime rate) going up by over 1%. I would be more concerned over my financial institution changing the amount that I pay above prime to a higher value for whatever arbitrary reason they come up with for such increases.

Another concern of mine is that I've read stories of a financial institution demanding immediate repayment of an unsecured line of credit (which is stipulated in most line of credit applications that I've seen/read). With a car loan, there is no chance of a change in rate as the rate is fixed for the duration of the loan period as long as I make the regular monthly payments of the loan holder demanding instant full payment. This is not the true from what I know of in terms of a line of credit.

Also, one of my line of credit rate is currently around 3.45%. Tesla's loan is 4.25% for the least amount of time and goes up to 4.60% for the maximum length of time.
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May 15, 2013
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JoeBlack23 wrote: If you pay with your LOC that basically is making a cash payment to the car dealer, so I assume you can negotiate a better deal than when taking their financing.
Why? What's the dealer's advantage? If you pay with a car loan, isn't the Bank going to pay the balance to the dealer anyway?

Plus, if the dealer was the one who referred you to the Bank, he gets a commission.
Last edited by iamthebest on Jul 7th, 2020 5:46 pm, edited 1 time in total.
[OP]
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titaniumtux wrote: BT if your CL is high enough :twisted:
I've always been worried about balance transfers since they generally seem to word it so that it applies for other credit cards.

Speaking about balance transfers, I just received one from CIBC Visa indicating that for a 1% transfer fee of the balance transfer amount posted, I can benefit from an interest rate of 0% for 10 months.
[OP]
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fakejordan wrote: Quick questions:

1.) If my LOC states - Interest Rate 5.94% *(TD Prime Rate+3.49%) - does that mean my total rate charged on any useage of the LOC would be 9.43%?

2.) Is this consider high? My parent has couple of LOC with interests rate ranging from 1.5 - 2.9. How do you get a lower rate?
1) Your rate is currently 5.94% and it is tied to TD Prime Rate + 3.49%. If TD's prime rate increases/decreases, your rate will increase/decrease.

2) Your rate according to the bank that I deal with is considered "average". To get a lower rate, you will need to speak with your financial institution's loan officer. In a few months, I am planning on renegotiating my rate with a few of the financial institutions that I have unsecured line of credits with but don't know how successful I will be given the current economic climate but I plan on mentioning my credit score, the amount of assets I have with the particular institution, and how long I've been a customer of that particular financial institution. As a last resort, I will also mention the rate I was given at another financial institution but I would only do this once meaning I wouldn't go back and forth between 2 financial institutions asking each of them to better the other rate. As mentioned, I don't know how successful I will be in a few months but it doesn't hurt to try (except for getting a hard hit on your credit score).
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JamesW84831 wrote: I just borrowed for the first time in my life. Even though I might (key word: might) have been able to get a cheaper car loan as opposed to a LOC, the LoC has two huge advantages:
1) Flexibility: have a rough month financially? Need the cash? The LoC allows you to pay just the interest charged (in most cases). A car loan does not.
You can have a LOC and a car loan on the same time. If you have financial problems with month, you can pay your monthly car loan with your LOC.
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lmcjipo wrote: I'm not worried about the interest rate (i.e. prime rate) going up by over 1%. I would be more concerned over my financial institution changing the amount that I pay above prime to a higher value for whatever arbitrary reason they come up with for such increases.

Another concern of mine is that I've read stories of a financial institution demanding immediate repayment of an unsecured line of credit (which is stipulated in most line of credit applications that I've seen/read). With a car loan, there is no chance of a change in rate as the rate is fixed for the duration of the loan period as long as I make the regular monthly payments of the loan holder demanding instant full payment. This is not the true from what I know of in terms of a line of credit.

Also, one of my line of credit rate is currently around 3.45%. Tesla's loan is 4.25% for the least amount of time and goes up to 4.60% for the maximum length of time.
#1. Personally, never seen it happen that they bump it up by some arbitrary amount: when it's granted it will say interest rate = Prime +x%. As Prime rate changes so, does your interest rate but highly unlikely they will just arbitrarily change the x% to some other amount. i.e. from Prime +2% to Prime +4% unless your credit rating suddenly went to crap.
#2. It can happen but there must be some other reason for immediate cancellation of the LOC (it is unsecured so bank is protecting themselves) but just to arbitrarily pull the LOC, again not likely to happen unless you're not repaying the LOC as required on a monthly basis.
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lmcjipo wrote: I'm not worried about the interest rate (i.e. prime rate) going up by over 1%. I would be more concerned over my financial institution changing the amount that I pay above prime to a higher value for whatever arbitrary reason they come up with for such increases.

Another concern of mine is that I've read stories of a financial institution demanding immediate repayment of an unsecured line of credit (which is stipulated in most line of credit applications that I've seen/read). With a car loan, there is no chance of a change in rate as the rate is fixed for the duration of the loan period as long as I make the regular monthly payments of the loan holder demanding instant full payment. This is not the true from what I know of in terms of a line of credit.
One thing to keep in mind is to not confused with Credit LInes vs Auto Loans as these are two very different credit products.

If you take out a LOC and use it to buy your new car the bank can still demand full payment as you have indicated above where from other institutions.
As far as the bank is concerned you used your $$$ credit line for whatever. Not all credit lines are secured so best to communicate with your lender what your purpose is.
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lmcjipo wrote: I've always been worried about balance transfers since they generally seem to word it so that it applies for other credit cards.

Speaking about balance transfers, I just received one from CIBC Visa indicating that for a 1% transfer fee of the balance transfer amount posted, I can benefit from an interest rate of 0% for 10 months.
Do it. CIBC will let you direct deposit the loan to any CIBC or Simplii deposit account.
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iamthebest wrote: Why? What's the dealer's advantage? If you pay with a car loan, isn't the Bank going to pay the balance to the dealer anyway?

Plus, if the dealer was the one who referred you to the Bank, he gets a commission.
Err what? You are just giving the dealer "cash" (i.e. a cheque) funded from your LOC. To them it is the same as paying from your chequing account. They certainly didn't refer you to your own bank.
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JoeBlack23 wrote: Err what? You are just giving the dealer "cash" (i.e. a cheque) funded from your LOC. To them it is the same as paying from your chequing account. They certainly didn't refer you to your own bank.
That is correct.
Using a personal LOC is just like buying a car with cash and there is no auto dealer reserve fee to the dealer from any bank. That guy does not know what he is talking about.
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mikeymike1 wrote: That is correct.
Using a personal LOC is just like buying a car with cash and there is no auto dealer reserve fee to the dealer from any bank. That guy does not know what he is talking about.
I asked a question with THREE interrogative signs. If you don't know the difference between a question and an affirmation... well.....

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