Paying monthly interest on LOC during school?

[Newbie1994]

Hello, 

I have a question with regards to the monthly interest incurred on LOC during school. In RBC, I was told that I need to pay the interest every month and the advisor said that it can be set up automatically to draw these payments from the LOC itself. However, in Scotiabank, the deal is that the same interest is incurred but I don't have to pay it until the year after grace. With the assumption that I don't have much income or liquid assets, if I go with RBC, I will be paying the monthly interest using the LOC itself. However, if I go with Scotiabank, I can either do the same or just not pay it, until the year after grace.

The RBC advisor said that not paying is a bad idea because if I don't pay the interest, then it will be compounded and I will end up paying even more. My question is, does this logic hold in my case? In other words, is paying interest using the LOC (essentially increasing the principle by the exact amount of the monthly interest payments) better than not paying interest? My understanding that the end result should be the same since I am not using my own money to pay interest but I am using the LOC. I understand that if I have cash surplus at any point, I should pay this interest to decrease compounding, but does it make sense to pay interest using the LOC? I wanted to know your thoughts on this.

Thank you! 

[ScotiabankMedsAdvisor]

 Other banks advisors have been saying this for years.  My advice to students is always to put any surplus cash down against your line of credit as it is completely open.  

I have dealt with hundreds of medical students and I can think of one that worked part time during school.  So having no income you have to pull from your line of credit to make interest payments so the RBC line is compounding just the same.  You just have to do an extra step to make it compound.  Also if you forget to make the interest payment with them your credit will take a hit.

I hope this answers your question.

[Newbie1994]

3 minutes ago, ScotiabankMedsAdvisor said:

 Other banks advisors have been saying this for years.  My advice to students is always to put any surplus cash down against your line of credit as it is completely open.  

I have dealt with hundreds of medical students and I can think of one that worked part time during school.  So having no income you have to pull from your line of credit to make interest payments so the RBC line is compounding just the same.  You just have to do an extra step to make it compound.  Also if you forget to make the interest payment with them your credit will take a hit.

I hope this answers your question.

Thank you! Just to clarify, assuming I am with Scotia and at a time when I don't have cash surplus, you agree that there is no difference between paying the interest from the LOC and not paying at all?  

[ScotiabankMedsAdvisor]

That's correct.  

[Newbie1994]

Thank you

[JohnGrisham]

I hate this misleadingly statement. 

 

ALL BANKS ARE CHARGING INTEREST AS SOON AS YOU USE MONEY.

 

All Scotia bank is doing is saving you 2 clicks, and making the interest payment on your LOC for you by just adding it to your principal. Every other bank you just have to make a payment from your LOC onto itself every month for the interest accumulated amount.

It takes me less than 5 seconds to do this every month, and its not onerous at all. Besides you should be checking your finances a few times a month anyways(I.e. looking at your CC charges, seeing if everything looks alright)

 

Yes, scotiabank has this infinitely small advantage, but dont mistake it for being something functionally different. All the banks are making you pay interest.