Wednesday, April 30, 2008

Interest Rates on Unsecured Personal Lines of Credit

I know someone who has a personal line of credit whose interest rate is prime+2.5%. The “prime” refers to the bank’s prime interest rate. Most banks in Canada have prime at 4.75% right now. So his interest rate is currently 7.25% compounded monthly, which works out to 7.50% annually.

What I was curious about is how this rate compares to other unsecured lines of credit. So, I started poking around online to find out. But, it seems that this is a big secret. Every bank and other type of financial institution I checked just said that the amount over prime depends on “personal circumstances”.

I understand that the interest rate will depend on income, credit history, borrowing limit, and possibly other factors. However, the lack of available information about what is a good rate and what is a poor rate makes it difficult for consumers to find a good deal.

With mortgages, at least you can see the starting point for negotiation with each institution (see CanadaMortgage, for example). For unsecured lines of credit, there seems to be just a black hole.

The only data points I have right now are prime+2.5% for the person I know, and the prime+1.5% for the line of credit I had a long time ago. If any readers can add to this, I’d like to hear about it. Let me know about any online sources of information, or just let me know what rate you have.

24 comments:

  1. PC Financial's rate for an unsecured line of credit is prime+1.25%.

    http://www.banking.pcfinancial.ca/a/rates/lowCostBorrowingAccountRate.page

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  2. David: If you look closely at that page, you'll see a footnote saying that the interest rate is actually determined at the time of credit approval. I guess the prime+1.25% is just an example. It may be typical, or maybe it's the best possible rate -- who knows.

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  3. My rate at ING Direct is prime + 1.75%, and my rate at PC Financial is prime + 2% (used to be 1.75% until I asked for additional credit).

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  4. When I first got my secured line of credit, Canada Trust also gave me an unsecured L-O-C at Prime + 0.5% and each time I go in to haggle about getting free banking the person from the bank looks and asks, "How did you get this?". I guess I got a good deal.

    --C8j

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  5. Hi,
    I have 2 unsecured LoCs (that are not used and are set for emergencies only) with TD & RBC and both are prime+2%

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  6. Thanks for the responses so far. The middle range seems to be prime plus 1.5% to 2% with outliers at 0.5% and 2.5%. This isn't exactly a scientific sample, but at least it gives me some idea.

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  7. my td waterhouse fee-based account gave me an unsecured line of credit of 25k at prime.

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  8. Many years back, I had an unsecured LOC with TD Bank that I believe was at Prime + 1%, which they assured me was the "best anyone could get".

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  9. My current rate at ING is Prime + 1.70% on an unsecured LOC.

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  10. Sorry, a little late to the party here - just found this blog. I started with a secured LOC at P+1 in the mid 90s. I was young, so my parents had to provide security. Three years later, I got married, managed to remove the security, and added my wife on as cosignor. Interest stayed at P+1. A decade later, we got divorced, and the bank (CIBC) made me close and reopen the LOC to remove my now-ex. Surprise surprise, the LOC jumped in the space of 30 minutes from P+1 to P+2.5! I wasn't happy! So, I called them every few months, eventually getting the interest rate down to P+1.75. Still not great. I got a new mortgage with a different bank a few months ago, and they seemed eager to get the rest of my banking. I mentioned my LOC, and they offered me a 60% limit increase, and a rate of P+0.5

    I agreed immediately. So Long CIBC.

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  11. Thanks for this topic, it's great to get an idea of what credit is costing people when going in to negotiate!

    I just opened a LoC at TD. I think I got about as good a rate as I can expect, though I didn't spend nearly enough time shopping around. I called them a few times, first to the EasyLine to get an idea of the starting point -- they offered a student line of credit at prime+3%, I said that just wouldn't work for me, so they said to go see someone in person at a branch. There, we eventually agreed to prime+1% on an unsecured regular (not student) LoC -- the student LoC has better repayment terms, but requires a cosigner and they said they can't go as low on the interest rate.

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  12. Potato: I'm glad it worked out for you. For anything that is going to cost you a lot of money, it makes sense to negotiate the price. Interest on debts definitely qualifies as expensive enough to make negotiation worthwhile.

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  13. Interestingly my unsecured line of credit with PC is prime + 5%!

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  14. @Anonymous: I complained and got mine down to prime+3%, but this still doesn't feel like much of a win.

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  15. td canada trust just shafted us by raising the rate from 4% to 8.25% on my line of credit. 1 month notice only.

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  16. @Mike R: Not to pry too much, but is there any change in your persoanl circumstances that TD is using as a reason or excuse to raise your rate by so much?

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  17. Funny, TD just did the same to me! Jumped me to 8.5% and ive never missed a payment etc... Have all my business and personal with them! Im shopping rates now. Ive been with TD for over 15 years!

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  18. My husband and I had an unsecured line of credit with RBC for $50,000 at prime + 1%. We had this rate for around 10 yrs because we used to have a family business. Two years ago, they said that the minimum rate for all unsecured LOC was going to be at least prime + 2%, so that has been our rate for the last 2 yrs. We like the convenience of the unsecured LOC as we've used it before for home renovations and purchasing a car. At the time we opened this LOC, mortgages with home equity LOC did not exist.

    The question below is now off-topic but I don't know where to ask this question. I found this blog just now, did a search on the blog but did not find a similar topic.

    I am considering changing our mortgage to have a home equity LOC so that I can section off our mortgage into fixed and variable rates, and section off the home equity LOC into tax-deductible interest expense and non-dedcutible interest. The rate on the home equity LOC would be prime + 0.5%.

    RBC says that we might have to close our unsecured LOC if we changed our regular mortgage to the home-equity mortgage. We will miss the convenience and stability of our unsecured LOC. We relied on it as our emergency fund but the new LOC will be tied to our mortgage, and will be closed and opened if we sell or buy real estate. (Our home was mortgage-free already when we decided to get a mortgage again to invest in a rental property.)

    Do you think it is a good idea to give up the convenience and stability of our LOC for the 1.5% advantage of the home-equity LOC? The tax-deductible interest expense that I would like to section off is related to the rental property.

    Does having an unsecured LOC at a low rate make you more credit-worthy to other lenders (and therefore we should keep our unsecured LOC?

    Great blog! I will have to read some of your past blogs too.

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  19. @Meowie: It sounds like an important consideration for you is the tax deductibility of part of your mortgage. Be very careful here. (I'm assuming that you are Canadian.) CRA requires a straight line between the borrowed money and the investment. If you mess this up, it could cost you a lot of money in added taxes. As for RBC wanting you to close your unsecured LOC, I wonder if maybe this is because RBC thinks you are close to your borrowing limit. Banks tend to be very liberal about how much they are willing to lend to people. If a bank is pulling back, you should probably re-evaluate your total debt load. Beyond these general observations, I can't give you specific advice.

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  20. Just found this blog post doing research on unsecured lines of credit. TD has recently sent me a letter saying my P + 1.5% is going to P + 4%. I have several mortgage payments left and think they are squeezing me to secure the LoC. Not going to happen. Does anyone have any information on current unsecured LoC's rates with other banks? TD is really ticking me off and I have been with them for 16 years. They appear to being trying to tick people off. Great customer service TD.

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  21. Just to give an update to the question I posted on Feb. 3rd:

    RBC allowed us to keep our unsecured LOC when we changed our mortgage to have a home equity LOC. I guess the account manager was just being cautious when he said that we "might" have to close our unsecured LOC. We were told that the time to apply for credit is when you don't need it so this is what we did. We will now use the home-equity LOC primarily but it's nice to know we still have the unsecured LOC.

    So now we have a home-equity LOC at prime + 0.5% and an unsecured LOC for prime + 2%. (I've been an RBC customer for 26 years.)

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  22. Hi,

    I have unsecured LOC with RBC & CIBC. Prime is 3% currently in Nova Scotia so 4.75% from David is high. Also I thought that is controld by Bank of Canada what is 3%. Anyway RBC gave me prime+2.25 initialy until I started to use it. Then I got note once I started to use that they decided to increase prime+5.38%=8.38%. I wanted rational for increase and still did not get. Just this week I got from CIBC same note of increase from current prime+3.5=6.5% to prime+7.5%=10.5% what is too high. I am looking to meet with CIBC soon. So be carefule if you do not have some extra money to pay this LOC if you need due to this interest change without explanation.

    Zlatko

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  23. Is this blog still active at all? I found the blog while looking around for, you guessed it, different rates on unsecured lines of credit. I've been with TD for a couple of years now and noticed a year or so ago my unsecured LoC was at Prime + 5.5%! This is quite high - 8.5% - and what bugs me is that a branch manager just the last week told me this is a "great rate"... how can that be? I see people above in the past three years have gotten better rates. Granted I am low to mid income (annual 40k), but I have an excellent credit rating, never carry a balance on my credit card, don't even use the damn thing (loc) and save regularly (into web broker accounts!). What gives? Or should I just go shopping for a better deal from another financial institution? Would prefer not - especially since I don't use it and every one of my requests for credit - a hard tap - is a knock against my credit rating.... ugh.

    Steve

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    Replies
    1. @Anonymous: Prime + 5.5% sounds quite high to me. I have prime + 3% (i.e. 6%) on an unsecured line of credit. I suspect I might be able to do a little better, but I rarely use it so I'm not that concerned with negotiating down to the minimum.

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