rad86 Posted March 1, 2010 Report Share Posted March 1, 2010 Hey guys, I talked to someone from RBC about the med student LOC and I was told that the LOC interest is compounded DAILY. Can someone give me an idea of how much interest you have to pay per month for a certain amount of loan? Or is there a special calculator somewhere that I can use to find out exactly how much interest I'll be paying per month, say if I borrow $50,000 (fixed amount)? The RBC person was not able to give me an accurate number besides telling me it's a bit more than $50,000 x 2.25% = $1125 per year. But it'll clearly be way more than that if the interest is compounded DAILY (mortgage is compounded semi-annually fyi). Thanks in advance. Link to comment Share on other sites More sharing options...
Laika Posted March 1, 2010 Report Share Posted March 1, 2010 I think most LOCs are CALCULATED daily, but COMPOUNDED monthly. So after each day, the bank calculates how much interest you owe for that day (i.e., balance * (interest rate/365)). These amounts are summed at the end of each month, and added to your balance. (The amount added will be the average balance for that month * (interest rate/12).) Because the interest gets added on each month, the amount you pay over the year is slightly higher than the straight up interest percentage, since you pay interest on the interest with each passing month. For the numbers you used, I think the "effective" interest rate is something like 2.27% assuming you let interest accrue on the LOC instead of paying it off each month. Link to comment Share on other sites More sharing options...
rad86 Posted March 2, 2010 Author Report Share Posted March 2, 2010 Thanks Laika, that makes a lot of sense. Man the "health care student LOC specialist" at RBC was so confused himself. Link to comment Share on other sites More sharing options...
Laika Posted March 2, 2010 Report Share Posted March 2, 2010 Thanks Laika, that makes a lot of sense. Man the "health care student LOC specialist" at RBC was so confused himself. lol... um... probably not a good sign when the "LOC specialist" can't explain how interest is calculated on the LOC! Link to comment Share on other sites More sharing options...
justletmein Posted March 2, 2010 Report Share Posted March 2, 2010 LOC interest is NOT compounded daily. As the above poster noted, it is paid on a monthly basis. Right now, prime rate at RBC is 2.25%. With a balance of 50K on the LOC, the monthly interest is approximately 94$. Why would you take out a lump sum? Then you pay interest from day 1. It is in your best interest to take out only what you really need from the LOC. Are you planning to use it for investments or down payment on a mortgage? If so, beware that using the LOC for these means is extremely risky. Dont forget prime can change in a heartbeat. Link to comment Share on other sites More sharing options...
rad86 Posted March 2, 2010 Author Report Share Posted March 2, 2010 Thanks for clearing things up, guys! Justletmein: yeah I was considering using the money for a big purchase, but it wouldn't involve more mortgage payments etc. on top of it. Link to comment Share on other sites More sharing options...
justletmein Posted March 3, 2010 Report Share Posted March 3, 2010 You should consider your options before using an LOC for a big purchase. The interest rate has the potential to skyrocket... consider how important it is to make this purchase that realistically you cannot afford Link to comment Share on other sites More sharing options...
rad86 Posted March 3, 2010 Author Report Share Posted March 3, 2010 Yeah thanks for the reminder. I 'm just doing the research now to see how much LOC will cost before taking any action. Link to comment Share on other sites More sharing options...
Steve-0 Posted April 12, 2010 Report Share Posted April 12, 2010 You can always calculate how much you will pay in interest for a given amount used: ([Amount used * Interest rate]/360)*30 The interest rate should be 0.0225 unless you got screwed by the bank. That will tell you how much interest you will pay for the month (a 30 day month) given a stable balance owing on the LOC. Link to comment Share on other sites More sharing options...
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