Line of Credit
 

OK, I'm a big newb here about LOC but can someone explain to me again?

I know it's bank lending you money with a lower interest rate than cc, but how does interest applied and how do I pay off the loc? Do I just pay off whatever I've used from the loc - let's say I have a $10,000 LOC and I used $2,000. Is interested only applied to 2,000?

Again, I"m a fucking newb so go easy. lol

Interest will only be charged on the $2000 you take out. Interest is based on your rate divided by 12 (number of months per year).

How about minium payment? I think the lady said 3% of the whole amount or something, but I didn't understand too much because of her accent. I will be seeing her within the week for further paper work, but I wanted to do some research/find some information/ on here first so atleast I have my own thoughts on it.

Thanks!

in general:
LOC = An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified time period. also called credit line.


how it works:

bank requires you to pay the interest amount every month, the borrowed amount.

10,000 limit @ 10% interest per year.
withdraw 10,000 you pay 1000 in interest per year or 83.333 per month

say you pay back 2000, now you owe 8000 - interest is 800 per year or 66.66...
the more principal you pay down, the less interest you pay the following month.

always make your principal payment on the first of every month if possible :)


hope that helps.

in your opinion, would you think this would be better than using your cc to make large purchases?

^ Use your credit card to make the purchase then use ur line of credit to pay off ur cc bill. Easy as that.

x2

Get a points card. I have flown 4 times in the past 3 years on points cause I make large purchases on the card, then pay off the card immediately.

Plus it can sit on your CC for 25-31 days without interest, while a LOC starts charging interest immediately.

Devils advocate: if you don't have the money to make a large purchase, you shoudn't be using a LOC or CC. Why are you spending $2K you don't have?

No that's just an example, I don't have a LOC right now. lol

Bank's can choose which repayment option they want you to pay. 3%, 2%, or interest only. Generally if you're high networth and the banker doesn't have any qualms about letting the balance "ride" they'll put you on interest only. If you're slightly marginal or want to make sure you eat at the principal the 2 or 3% option will be agreed upon. With all that being said it is revolving credit in which case you can pay as much down as you want with no penalty at any time. Your rate is dependent on credit rating but if you're halfway decent and you're paying more than prime + 3% you're getting hosed.

If it's a unsecured line of credit. Which means it's only backed by your credit, but not any real asset. Then At TD the LEAST you have to pay every month is 3%, they won't let you do interest only. Other banks might be different.

Yea I have an unsecure and for some reason the bank screwed up and put me on a interest pay back only haha. No complaints for me. But yea definitely use your CC and just pay it off with your LOC. DOn't be dump though of course if you can't afford it and it's a big purchase just wait until you get more funds. Just because the interest is lower doesn't mean you shoudl go nuts into debt.