Jump to content

Recommended Posts

Hello all, 

figured I would ask this here because I’m financially illiterate and because there’s no one I know that would know. 

My LOC agreement states that interest on my principal will be calculated daily and compounded monthly. The rate is at prime (3.95). 

Assuming my first year tuition will be ~13k, and I let that balance sit on the LOC for a year...does that mean that each month they’re gonna calculate ~4% interest on 13k, and add it onto my total amount borrowed? The way I worked it out, that means after 12 months I’d owe a total of 19k. That’s about 500 in interest per month.... I may have that wrong and I really just want to understand what I’m getting into with this LOC before I start drawing on it like a kid with no impulse control and no parental supervision.

 

thank you!

Share this post


Link to post
Share on other sites

It's only 3.95% per year.

Compounded monthly means they get to charge you interest on interest which means you effectively pay slightly more than 3.95% on an annual basis (around 4.02%)

If you let $13,000 sit on your LOC for 12 months you'd end up owing around $13,522

I have quite a bit more than $13,000 used on my LOC and my monthly interest charge last month was around $68

 

Edited by Toad

Share this post


Link to post
Share on other sites

Yeah 3.95% is the APR or annual percentage rate. So if they are compounding monthly your monthly interest is 3.95%/ 12 months.

0.0395/12= 0.00329% per month 

$13,000 x 0.00329= ~$43 dollars a month (not accounting for compounding) 

Share this post


Link to post
Share on other sites
1 hour ago, Toad said:

It's only 3.95% per year.

Compounded monthly means they get to charge you interest on interest which means you effectively pay slightly more than 3.95% on an annual basis (around 4.02%)

If you let $13,000 sit on your LOC for 12 months you'd end up owing around $13,522

I have quite a bit more than $13,000 used on my LOC and my monthly interest charge last month was around $68

 

 

34 minutes ago, healthlaw said:

Yeah 3.95% is the APR or annual percentage rate. So if they are compounding monthly your monthly interest is 3.95%/ 12 months.

0.0395/12= 0.00329% per month 

$13,000 x 0.00329= ~$43 dollars a month (not accounting for compounding) 

thanks guys!! that is way more affordable than I thought, even with compounding taken into account. I wouldn't have to make interest payments during school but I'm now strongly considering it now that I know prime is an annual rate. 

Share this post


Link to post
Share on other sites
8 hours ago, bigfudge2017 said:

 

thanks guys!! that is way more affordable than I thought, even with compounding taken into account. I wouldn't have to make interest payments during school but I'm now strongly considering it now that I know prime is an annual rate. 

Always a smart idea to stay on top of interest when you can (coming from someone who didn’t but wishes they had)

  • Like 2

Share this post


Link to post
Share on other sites

Correct me if I'm wrong but you got the Scotia LOC, right? 

You should confirm that your interest compounds monthly. I've heard of some people, and I'm in the midst of negotiating this now, that don't have compounding interest. 

Share this post


Link to post
Share on other sites
2 hours ago, NFLDFree said:

Correct me if I'm wrong but you got the Scotia LOC, right? 

You should confirm that your interest compounds monthly. I've heard of some people, and I'm in the midst of negotiating this now, that don't have compounding interest. 

Yes I went with scotia.  That’s unreal.. I didn’t know you could do that, but it’s too late as my line has been finalized. That being said I hope you’re successful with that. As long as I pay the interest every month there won’t be anything to compound anyways but not having to worry about that would’ve been even better

Share this post


Link to post
Share on other sites
12 hours ago, NFLDFree said:

Correct me if I'm wrong but you got the Scotia LOC, right? 

You should confirm that your interest compounds monthly. I've heard of some people, and I'm in the midst of negotiating this now, that don't have compounding interest. 

Can you clarify "don't have compounding interest" part?

What happens to the interest then? 

Share this post


Link to post
Share on other sites
On 2/9/2019 at 8:09 AM, Luckycharm said:

Can you clarify "don't have compounding interest" part?

What happens to the interest then? 

Let's say you use 10k of your LOC the first day you get it for simplicity. A prime interest rate of 3.95% is about 0.33% a month, so you'll pay $33 in interest every month. 

The way my Scotia loan works is that the interest payments come right off of the LOC... So at the end of 1 month in this example I would owe $10,033, but for month 2 rather than calculating interest payment on $10,033 the next interest payment is still $33. So over the course of 12 months you'd pay $400 in interest payments added onto your LOC, but you don't have to pay interest on that, which would be the compounding. 

I'm still confirming this with the agent that I spoke with, but I've heard of people negotiating this. Obviously, as @bigfudge2017noted if you are going to make your interest payment each month this doesn't matter. 

Share this post


Link to post
Share on other sites
8 minutes ago, NFLDFree said:

Let's say you use 10k of your LOC the first day you get it for simplicity. A prime interest rate of 3.95% is about 0.33% a month, so you'll pay $33 in interest every month. 

The way my Scotia loan works is that the interest payments come right off of the LOC... So at the end of 1 month in this example I would owe $10,033, but for month 2 rather than calculating interest payment on $10,033 the next interest payment is still $33. So over the course of 12 months you'd pay $400 in interest payments added onto your LOC, but you don't have to pay interest on that, which would be the compounding. 

I'm still confirming this with the agent that I spoke with, but I've heard of people negotiating this. Obviously, as @bigfudge2017noted if you are going to make your interest payment each month this doesn't matter. 

but the $33 interest will be added to the outstanding loan amount. Interest will be based on outstanding amount unless you pay the interest separately. 

Share this post


Link to post
Share on other sites
8 minutes ago, Luckycharm said:

but the $33 interest will be added to the outstanding loan amount. Interest will be based on outstanding amount unless you pay the interest separately. 

I'm not really sure what to say. I just noted in that message that that isn't what happens in this scenario (that I've heard others get and I'm still working out with my agent). 

You pay interest on the loan amount that you use. Not the interest payments. So no, the interest is not based on the outstanding amount of the loan because interest doesn't compound. It's a circular argument where you've just said "no that doesn't happen" lol

Share this post


Link to post
Share on other sites
1 hour ago, NFLDFree said:

Let's say you use 10k of your LOC the first day you get it for simplicity. A prime interest rate of 3.95% is about 0.33% a month, so you'll pay $33 in interest every month. 

The way my Scotia loan works is that the interest payments come right off of the LOC... So at the end of 1 month in this example I would owe $10,033, but for month 2 rather than calculating interest payment on $10,033 the next interest payment is still $33. So over the course of 12 months you'd pay $400 in interest payments added onto your LOC, but you don't have to pay interest on that, which would be the compounding. 

I'm still confirming this with the agent that I spoke with, but I've heard of people negotiating this. Obviously, as @bigfudge2017noted if you are going to make your interest payment each month this doesn't matter. 

Edited: I just PM instead

Edited by SallGoodMan

Share this post


Link to post
Share on other sites

There are multiple components to bank financing for LOC's.

"Calculated daily" - this means that the bank will take the balance of the credit each day and multiply it by 1/365th of the annual interest rate. e.g. if your balance is $13k, then each day they will calculate the interest owing by multiplying the $13,000 by 3.95%/365 (~$1.4068/day).

"Compounded monthly" - at the end of the month, the bank will add up the calculated daily interest and the total amount will be credited from your LOC. e.g. If you withdrew $13,000 on January 1, on February 1 you would have $43.61 draw down on your LOC.  The reason this is called compound interest is because starting on February 1, the daily calculated interest would be $13,043.61 (original Jan. 1 balance plus the interest charged on Feb. 1) multiplied by 3.95%/365 (~$1.4116/day)

For most standard lines of credit, the minimum payment is the interest.  This way it is impossible to compound the interest because you would pay the interest using other monies.  However, for PSLOC's, banks will normally allow the interest payment to come from within the LOC as many students do not have the ability to make minimum monthly payments while attending school.

Okay... someone tell me I'm wrong 😛

 

 

Edited by thebigchange
Forgot to close bracket on second paragraph
  • Like 2

Share this post


Link to post
Share on other sites
22 minutes ago, thebigchange said:

There are multiple components to bank financing for LOC's.

"Calculated daily" - this means that the bank will take the balance of the credit each day and multiply it by 1/365th of the annual interest rate. e.g. if your balance is $13k, then each day they will calculate the interest owing by multiplying the $13,000 by 3.95%/365 (~$1.4068/day).

"Compounded monthly" - at the end of the month, the bank will add up the calculated daily interest and the total amount will be credited from your LOC. e.g. If you withdrew $13,000 on January 1, on February 1 you would have $43.61 draw down on your LOC.  The reason this is called compound interest is because starting on February 1, the daily calculated interest would be $13,043.61 (original Jan. 1 balance plus the interest charged on Feb. 1) multiplied by 3.95%/365 (~$1.4116/day)

For most standard lines of credit, the minimum payment is the interest.  This way it is impossible to compound the interest because you would pay the interest using other monies.  However, for PSLOC's, banks will normally allow the interest payment to come from within the LOC as many students do not have the ability to make minimum monthly payments while attending school.

Okay... someone tell me I'm wrong 😛

 

 

I thought they use 360 days instead of 365/366

Share this post


Link to post
Share on other sites

i think I would have benefited immensely from some financial literacy type classes in high school. thanks all for your input

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.



  • Recent Posts

    • "similar wealth to my own what they were getting" Do they also have similar available resources, expenses, accumulated educational debts and personal reasons....... "The primary criterion for receipt of a bursary is financial need. Decisions are made based on a variety of considerations, including available resources, expenses, accumulated educational debt and personal factors, including medical and familial circumstances.  
    • Academic:  Going to echo The Scientist because he usually always explains UOttawa's depth quite well. Our faculty size for the English Section is the largest with 50+ fulltimes, 30 part time (technically, in reality they have job functions non-purely academic but teach courses, since we have non-JD stuff like the National Program for training QC lawyers in commonlaw, a bunch of faculty-run legal clinics/public interest groups intervening in the SCC, etc. ). Research at the faculty is also pretty strong but the university isn't that good at branding itself; e.g. our environmental law faculty has the most depth including the very best career lawyers in Canada and our tech law faculty has the most influential people in Canada for tech-related areas of law. We have people from the foremost torts scholar in Canada (former dean too) and a former Attorney General teaching 1Ls.  Other positive notes: Significant amount of panels, talks, issues and engaging topics. This ranges from the obvious SCC lawyers/Federal Courts cases where a bunch of lawyers go from the court house to panels at UOttawa, many corporate lawyers from Ottawa/Toronto, many specific interest groups (Aboriginal law, feminist law, technology law, federal law, public international law etc)  and many visiting lawyers and academics in Ottawa. The thing about Ottawa is that it functions as a sort of "gathering place" for people from all across Canada/the world so there's lots of big events in town where some people also do things at UO.  We also have a strong "revolving door" of sessional instructors, you will very likely get one per semester. They are usually hits but they are also working people with full jobs and a law graduate degree (e.g. the guy who teaches my course is an awesome first-timer and went to HYS school for an LLM). They are also fantastic people to talk to for career advice.  Downsides: We do not have nearly the depth as Queens or a few schools in advanced corporate law courses; classes can be very full sometimes (50-60 per class is typical).  Community:  Upsides: More mature community than other law schools, like 30% of the class has had career experience or a graduate degree and the average age is like 25-26. While the majority just got out of undergrad, the two groups mix quite well. I've known many people who worked for the Feds or Prov government, worked in Bay Street, did advanced research MSc's, etc. I have honestly learned alot from my classmates and each bring great life experience.  We have lots of student groups; arguably many of the X Field of Law Students Association do not do regular events except panels and bake sales but you will find lots of proactive interest-specific groups/clubs/event organizations. Getting engaged in student life can be very tricky but it requires looking in the right place.  We also got to meet the SCC at an event hosted on their lawn; it was fantastic. The Faculty seems to be the most well-connected in Canada.  Downsides: Overcrowded building; they shuffle a lot of undergrads into a few rooms and they are often in our libraries. Alot of law students were pushing for a ban of undergrads. Civ Law also uses our space and we operate like two parallel worlds. The community is less tied together; there is definitely a weaker sense of community outside of your large group (70-80) or small section  (15-20). Part of this is due to the inept law student society imo and the lack of community-building events of the orientation which did not have any social events. They virtually guarantee that cliques will (and has always) formed just by the nature of how they structured the first week. English Common Law have far few events that bring people together and French Common Law (1/5th the class) are pretty much in their own bubble. Civil Law tends to dominate the libraries though; hard-working but we have basically parallel worlds.  I honestly think this can be fixed by just giving us our own student spaces and lounge areas; offices and rooms for student groups and making it appear more community-friendly. They were supposed to give us a new building a while back but UOttawa instead spent it elsewhere. Taking proactive effort in the first 3 weeks with community-making social events and breaking the barriers that develop is also something the admin can do.   Other Notes: It can feel like "Going to Work" in some sense; our school is probably less student-focused given the school plays a significant functional role for the legal profession, Canada, and specific interests/issues. For example there was an event honoring a great Ontario judge attended by many lawyers and well-to-do judiciary members including the SCC right beside my evening class; it was definitely open to all students though.
    • Generally speaking, of a 4-year degree, U of C considers only the last 2 years-worth of courses (last 60 of a total of 120 credits). Regardless of whether they transfer or not.  If you went to a university outside of Canada, then you will want to contact admissions with your specifics.
    • Can anyone help? I understand that your last 60 credits are considered for your gpa calculation but what If you go to a different university than UofA? do all the degree level classes count towards gpa? Even if they don't transfer to the Uofa? 
    • Can anyone help? I understand that your last 60 credits are considered for your gpa calculation but what If you go to a different university than Calgary? do all the degree level classes count towards gpa? Even if they don't transfer to the UofC? 
×