Thursday, March 3, 2011

Interesting Rate

I received an anonymous comment a couple days ago on my month end review telling me that my line of credit interest rate was exceptionally high. I hadn't actually given my line of credit interest rate any thought at all, it was just something that was there so I accepted it. The comment however spurred me into gear. I didn't expect to get the 4.5% interest rate he/she mentioned, but if my interest rate was high why not look into getting a decrease?

To google I go!

Apparently the internet isn't a very good place to go to find interest rates on lines of credit in Canada, the banks play that information pretty close to their chest. So, I called my bank Tuesday at lunch, and managed to get an appointment for after work on Wednesday. That was fast!

I almost got my hopes up there!

So, I went in and discussed a rate decrease. No dice. Apparently the major banks tie their line of credit rates to the "customer relationship" they have with you, ie: The more financial credit products you have with them, the better the rate they'll give you. So, if you have your mortgage, credit card, line of credit, RRSP, TFSA, and other investments through them, they'll give you a better rate than if you have just a chequing or a savings account with them.


If you wanted my investment business to build our "customer relationship", why did you try to convince me to lock into a 5.5% fixed rate mortgage when I was being offered 3.99% elsewhere? That doesn't sound like good relationship building to me.

Save 1.5% on a $237,000 mortgage, or save... any number... on a $11,000 line of credit balance.

You tell me what to pick.

There was the option of securing my line of credit to my house equity, but that wasn't guaranteed to be successful. Along with the application process there was an assessment cost of just under $200, and other application/closing fees of close to $500. Those fees alone are essentially the same as tacking another 6% onto my interest rate for the year. Why on earth would I want to do that for a drop of a couple percentage points? I'm trying to pay the thing off, not float it.

The other option offered was to look at increasing the limit on my line of credit. Apparently if I bumped the limit up to $20,000 it would put me into a different "relationship" category, and COULD possibly drop my rate 0.1 - 0.15%

Excuse me if I don't jump for joy on that one.

I contemplated the very financially dangerous maneuver of increasing my credit limit and using the money to pay off my credit card to save myself a few percentage points. I thought better of it.

If I'm going to be shopping around for a better rate, I want as few credit inquiries as possible. The financial advisor did offer me a useful piece of advice though. She said that if I have investments with another bank, I should consider looking to them because they might give me a better rate on a line of credit. Definitely something to remember.

I was just hoping to get a better rate through my existing account. The last thing I wanted to be doing was rate shopping with a balance sitting at 90%+. Not good.

Makes me want to rethink my savings vs. debt repayment plan.

Any Canadian guys/gals know what the banks are offering for line of credit or loan rates right now?


Anonymous said...

Great that you took the first step of having the conversation with the Bank.

Pretty much all of the Banks advertise (unsecured) lines of credit as low as 'prime +1%'. Given that prime is at 3% this would translate to a floor rate of 4%. Now whether you qualify for the floor rate depends on a lot of factors such as your credit rating and whether you have other products with the Bank. Being a home owner with s

Part of the process also involves negotiation. It is often useful to talk about how you credit quality has improved over time. It is also useful to talk about adjusting the interest rate as a statement rather than a question, and indicating that you would prefer not to move your business elsewhere. Last tactic is always to ask to speak with the manager as they often have the ability to make exceptions.

If you haven't already you should review your credit history which may give you an additional point of negotiation or alert you to any issues with your credit history.

judy said...

I love my credit union. They have really been a life saver for me as far as interest rates and a great relationship with them. They have often gone out of there way to help me when I needed it.


Cassie said...

@Judy - I think I'm going to try a credit union next.

@Anonymous - I've only found 1 bank that actually advertises that rate. As you read in my post, they'll only lower my rate if I carry other lending service products with them. Don't be fooled by the AS LOW AS advertising; just because they give it to a small handful of people and advertise accordingly doesn't mean they'll give it to you.

I have never declared bankruptcy, and I've never so much as been late on a payment. Last time I checked my credit (recently) it was fine. I didn't go in there timidly asking them to reduce my rate, I told them I wanted a rate reduction and I wanted to know what they could do for me. I told them I'd rather keep my business at their bank, but that I'd start shopping for a better rate if they couldn't do better. They know I'm going to move my business elsewhere, it didn't make a lick of difference in whether or not they'd reduce my rate. I have high credit usage at the moment, and moving my other credit products to them was not financially intelligent, so I didn't have any leverage with them. Asking to speak to the manager didn't help either, I tried that.

Banks are there to help you when you don't need it.