Completely Lost - What Is An Loc?

[ekdp]

Hi all, 

 

Just wondering, what is a line of credit exactly? Since I'm assuming most of us don't work during med school, is the money loaned to you by a bank through the LOC (I'm assuming that is what it is, but I have no idea how it works) the only money you have available? Assuming your parents aren't supporting you financially in any way. 

 

 

Thank you so much!

[cookiemonster99]

LOC-Line of credit is money that is lent to you on an interest rate

 

for example: if you have a LOC of $250,000 

 

and you take out $30,000 to pay tuition 

 

you are paying interest on that $30,000 in your first month. Usually the interest rate is at prime which is around 3% per annum(meaning year) 

 

so you are paying $900 dollars per year on just interest alone per year i.e $75 dollars per month for the 1st year

 

Usually while your still in med or dent school the banks will only make you pay the interest on your LOC

 

remember, the above calculation is only if you take out ONLY $30,000 dollars that year. 

 

Also, other than your LOC you have OSAP from the government and bursaries through the universities that you can apply for to help you ease your debt

 

hope this helps

[MD2015]

In other words, you enter into a contractual relationship with the bank whereby at an agreed rate of interest - prime - the bank will allow you to draw down by way of loan on a line of credit, say $250,000 or $275,000 is your credit availability, with you paying interest on the outstanding loan monthly, and after residency, you shall make payments of capital and interest say over a 10 year period.

 

Banks want physicians as customers and the LOC provides you financing during your full medical studies. So, if you are like me, poor, and have existed during university undergrad on student loans from a bank, you consolidate these loans into your LOC where the interest rate is cheaper, and you cover your full tuition and living expenses from this source, other than government loans and bursaries.

[toxscreen]

If you use your LoC itself to make a monthly interest payment, wouldn't that increase the next month's interest payment?

[rmorelan]

If you use your LoC itself to make a monthly interest payment, wouldn't that increase the next month's interest payment?

 

absolutely - and that is exactly what happens. Your end up paying more and more in interest both because you owe more as you spend it on tuition etc, and because the interest on the interest adds up as well.  This should probably create a state of respect for the LOC and mild level of healthy fear in overspending (but not a paralyzing fear that stops you from actually living reasonably well and taking care of yourself).

 

Side Note - that in part is why I always am a bit confused when people are worried they get with some LOCs only say 25% in the first year of their 4 years. Your costs are higher in the later years (interest, electives, interviews, moving again....) so you better be able to manage needing at most only 25% in year one

[rmorelan]

In other words, you enter into a contractual relationship with the bank whereby at an agreed rate of interest - prime - the bank will allow you to draw down by way of loan on a line of credit, say $250,000 or $275,000 is your credit availability, with you paying interest on the outstanding loan monthly, and after residency, you shall make payments of capital and interest say over a 10 year period.

 

Banks want physicians as customers and the LOC provides you financing during your full medical studies. So, if you are like me, poor, and have existed during university undergrad on student loans from a bank, you consolidate these loans into your LOC where the interest rate is cheaper, and you cover your full tuition and living expenses from this source, other than government loans and bursaries.

 

yeah but you still go for the student government loans and bursaries anyway.....The consolidation happens post graduating, government loans have bursaries and interest free periods, and bursaries are free money

[toxscreen]

absolutely - and that is exactly what happens. Your end up paying more and more in interest both because you owe more as you spend it on tuition etc, and because the interest on the interest adds up as well.  This should probably create a state of respect for the LOC and mild level of healthy fear in overspending (but not a paralyzing fear that stops you from actually living reasonably well and taking care of yourself).

 

RBC says that if your interest payment is late, they will add that interest to the principal owed and calculate next month's interest based on that number. That's essentially equivalent to paying the monthly interest using the LoC right?

[rmorelan]

RBC says that if your interest payment is late, they will add that interest to the principal owed and calculate next month's interest based on that number. That's essentially equivalent to paying the monthly interest using the LoC right?

 

yes.

 

In fact it would be nice if they simply automatically put the interest payment back against the LOC without all of the fuss (like say overdraft fees). That is what is going to be paying for the interest anyway until you actually start earning money - you have little choice but to use the LOC to pay for the interest on the LOC.

[photato]

yes.

 

In fact it would be nice if they simply automatically put the interest payment back against the LOC without all of the fuss (like say overdraft fees). That is what is going to be paying for the interest anyway until you actually start earning money - you have little choice but to use the LOC to pay for the interest on the LOC.

I asked the RBC rep about this to see if I could set up automatic payments.  I was told no because they view it as "irresponsible" to pay interest on interest. It was funny because for the rest of the meeting she kept emphasizing how I would get the whole balance up front so I can spend as much as I want in first year and that I can use the LOC to cover 10% of a 20% downpayment for a house.  After I left I immediately booked an appointment with Scotia.

[oshaku]

I asked the RBC rep about this to see if I could set up automatic payments. I was told no because they view it as "irresponsible" to pay interest on interest. It was funny because for the rest of the meeting she kept emphasizing how I would get the whole balance up front so I can spend as much as I want in first year and that I can use the LOC to cover 10% of a 20% downpayment for a house. After I left I immediately booked an appointment with Scotia.

Paying interest on interest is what happens when you don't make any payments (that whole no payment required deal)... They just want to start making money from you as soon as possible.

[MD2015:)]

Only deal with bank people who are familiar with MEDICAL student lines of credit because many other people at the banks don't know the details of our LOCs well. You should not need a co-signer, they should offer at least 250,000, and interest should be prime and no more (prime is 2.85% right now). Don't sign up for anything that doesn't offer you that because it is the incorrect kind of LOC. Most people have them through RBC or Scotiabank. Usually you can look on the websites or ask around at the bank or on forums for specific bank people who are familiar with the medical student LOCs. And I think you can either use your LOC to pay interest payments or get the interest payments to come out of your debit account and then just transfer LOC money to the debit account. Most people do this because most dont work during medical school and dont have much in the way of savings from before.

[pugsanddoctors]

So, when going in to consult about an LOC, what should I be asking? 

[Razer]

So, when going in to consult about an LOC, what should I be asking? 

 

http://forums.premed101.com/index.php?/topic/77408-questions-to-ask-when-asking-about-locs/

[rmorelan]

http://forums.premed101.com/index.php?/topic/77408-questions-to-ask-when-asking-about-locs/

 

ha, yeah I think that is still pretty valid. Don't think I would say much different

[hopeful_med]

Quick question. I have just been told by my Scotia advisor that only the first personal cheque (booklet) is free and I must pay if I need more personal cheques.is this the case for all line of credit? Or just scotiabank? Or just me?

[snacks]

Quick question. I have just been told by my Scotia advisor that only the first personal cheque (booklet) is free and I must pay if I need more personal cheques.is this the case for all line of credit? Or just scotiabank? Or just me?

 

My Scotia advisor told me all cheques are free. What you're describing seems like a standard student account for high school or university?

[hopeful_med]

I have professional line of credit ($250,000). It's not a huge thing, but I was always under the assumption that both checking account and loc cheques are free and am wondering about other Scotia users and other banks

 

 

My Scotia advisor told me all cheques are free. What you're describing seems like a standard student account for high school or university?

[rmorelan]

I asked the RBC rep about this to see if I could set up automatic payments.  I was told no because they view it as "irresponsible" to pay interest on interest. It was funny because for the rest of the meeting she kept emphasizing how I would get the whole balance up front so I can spend as much as I want in first year and that I can use the LOC to cover 10% of a 20% downpayment for a house.  After I left I immediately booked an appointment with Scotia.

 

yeah that is just.....well just dumb. Ha, how else do they think an unemployed person would be making the payments on a 100-200K loan for school?

 

oh well.

[rmorelan]

I have professional line of credit ($250,000). It's not a huge thing, but I was always under the assumption that both checking account and loc cheques are free and am wondering about other Scotia users and other banks

 

 

 

it is a small thing I guess (ha, people still use cheques? <joking>) - I get mine for free.

[Birdy]

I asked the RBC rep about this to see if I could set up automatic payments. I was told no because they view it as "irresponsible" to pay interest on interest. It was funny because for the rest of the meeting she kept emphasizing how I would get the whole balance up front so I can spend as much as I want in first year and that I can use the LOC to cover 10% of a 20% downpayment for a house. After I left I immediately booked an appointment with Scotia.

Just to ensure this is added in the thread; while the RBC LOC doesn't capitalize the interest payments automatically, it was a matter of a couple of minutes for me to set my account to automatically transfer an amount sufficient to cover my payment from the LOC to the chequing account every month on the day the interest payment comes out. If/when I get to the point my payment is higher than the amount I preset, it's a simple matter to adjust it. But it otherwise takes care of itself.