line of credit

[alexei]

I just want to clarify some questions i have for the use of lines of credit.

Im looking to obtain a line of credit from the bank. What kind of interest rate will i be able to obtain. I just graduated from university. How long are the grace periods to pay off a certain amount?. How does the line of credit affect my credit rating?

and Are there any requirments to obtaining the line of credit?

Im interested because isnt it more cost effective using a line of credit with lower interest rate than a credit card

is there anything else that i would need to know.

thanks

[Corvillus]

There will be no grace period on anything, interest charged from day 1 of every transaction, and on your credit report I'd shows up at a revolving account just like a credit card.

Compared to a CC, it will be harder to get because the bank will usually want to see proof of stable income.

[i6s1]

Im looking to obtain a line of credit from the bank. What kind of interest rate will i be able to obtain.

6-10% if your credit is good to OK.



How does the line of credit affect my credit rating?


Applying for the LOC will cause a temporary drop in your credit score. Using the LOC and making payments will increase your score.

and Are there any requirments to obtaining the line of credit?


Good credit and stable income.

Im interested because isnt it more cost effective using a line of credit with lower interest rate than a credit card



No. A credit card gives you points and a grace period. If you can't pay for something before the grace period is up, then you shouldn't be buying it. Since you will be paying interest on any thing you put on an LOC, and you shouldn't be paying credit card interest, the credit card is more cost effective.

[Corvillus]

Im interested because isnt it more cost effective using a line of credit with lower interest rate than a credit card

No, credit cards have grace periods, lines of credit don't. Also, if you can get a credit card for the same interest rate (yes, it's possible, there are CC's as low as prime + 0.9% for purchases, cash advances and balance transfers), then the credit card will usually be better if only for the fact that it has the grace period. The biggest advantage of the line of credit is that there's no fees to cash advance or balance transfer, making them good for consolidating debt onto or carrying short term balances.

That said, effective use of a credit card is paying in full every cycle with your own money, not with other credit, and effective use of a line of credit is typically on investments that gain more than the interest costs, or as a free chequing account. Planning to use the line of credit as a way to lower the costs of future consumer debt is just prolonging the inevitable, and not really the best idea (although if you already have consumer debt, transferring to one to lower rates is a good idea, so long as you don't accrue any more debt after doing so).

[ray420]

I just want to clarify some questions i have for the use of lines of credit.

Im looking to obtain a line of credit from the bank. What kind of interest rate will i be able to obtain.

LOC are usually around prime +5 or so depending on your credit so anything from 4% to 8% goes right now. If it is secured you can get a lower rate.

How long are the grace periods to pay off a certain amount?. How does the line of credit affect my credit rating?
None, LOC dnt have grace periods. It shows as a revolving credit just like credit card as someone mentioned above.


and Are there any requirments to obtaining the line of credit?


Yes usually a very strong credit score good, good history and stable income at least 6months usually.
Line of Credit is harder to obtain because limits are usually higher and rates are low.


Im interested because isnt it more cost effective using a line of credit with lower interest rate than a credit card
is there anything else that i would need to know.
thanks


The only time LOC is better than CC is if you have to carry a balance and cant pay things off because rates are usually lower than CC.
HOWEVER Having said that If you have to borrow to buy something DONT DO IT! there is nothing "cost effective" about being in debt and paying interest. Save up and pay cash.

Try not to use CC unless you have VERY GOOD HABITS and strong income, you can use it to pay for things and pay it off before the end of the month.

[Bugler]

I have a line of credit I'm not using.. I thought it would be a good thing to have to put tuition on when the time comes.. education debt is not the same as consumer debt.

Pay attention to the warnings given about CC's though.. I have no CC debt, but this wasn't always the case.. what I am noticing now however is that they make you spend more.. esp. at stores that let you swipe and walk without using a PIN or signing.. it effectively makes it faster than cash in ways, and encourages you to impulse shop food items and stuff. They are good to have though.. like the cashback cards.. which effectively lower your tax payable, etc.

[Corvillus]

I have a line of credit I'm not using.. I thought it would be a good thing to have to put tuition on when the time comes.. education debt is not the same as consumer debt.

Pay attention to the warnings given about CC's though.. I have no CC debt, but this wasn't always the case.. what I am noticing now however is that they make you spend more.. esp. at stores that let you swipe and walk without using a PIN or signing.. it effectively makes it faster than cash in ways, and encourages you to impulse shop food items and stuff. They are good to have though.. like the cashback cards.. which effectively lower your tax payable, etc.

I agree with that, education debt is much like an investment, in that the interest you'll be paying on the credit line in the meantime will be offset by the pay increase that you'll get once you get the better job the education opens up. Basically, an LOC (or borrowing at cost in general) is good for anything EXCEPT consumer debt. But that's typically what revolving accounts are used for unfortunately.

As for the impulse buy thing, I don't find credit cards any worse than debit cards, both will make you spend a lot more money than you would if you carried around cash. In fact, for me i find that the credit card is easier to not spend money on (I worry about getting a big bill from it, wheras with debit cards I usually think "oh well I still have money in the bank"). But I suppose I'm different from most people there.