VISA VS. LOC

[Nir]

Hi,

A banker offered me new business visa 50K limit with good conditions. I know having a LOC is critical for success or at least for risk minimization.

is the same rule of thumb works for Visa - accept and apply when offered?

I was offered good conditions - prime plus 1.5%, 50K. (currently I don`t even need it)

Visa cash advance is expensive and that is the source of my dilemma. is it still a good idea to have reasonable visa limit (or more than one visa card) like it is with LOC?

THANKS.

 

[Thomas Beyer]

QUOTE (investmart @ Mar 8 2010, 12:56 PM) is it the same rule of thumb works for Visa - accept and apply when offered?

I was offered good conditions - prime plus 1.5%, 50K. (currently I don`t even need it)
That`s a great rate for a VISA card. TAKE IT !

Will it go up if you don`t pay ? Is this for an intro period only ? Did you read the fine print ?

What bank is that with ?

 

[gwasser]

QUOTE (investmart @ Mar 8 2010, 12:56 PM) Hi,

A banker offered me new business visa 50K limit with good conditions. I know having a LOC is critical for success or at least for risk minimization.

is it the same rule of thumb works for Visa - accept and apply when offered?

I was offered good conditions - prime plus 1.5%, 50K. (currently I don`t even need it)

Visa cash advance is expensive and that is the source of my dilemma. is it still a good idea to have reasonable visa limit (or more than one visa card) like it is with LOC?

THANKS.

Is the prime+1.5% on your Visa or on your LOC?

 

[MikeMcCrae]

With Visa`s there are often very good limited time offers. Make sure you understand what the whole deal is. It may be a 90 day offer of something like that. Also be careful that you manage the card well. Don`t keep it very close to the limit or it will affect your beacon score. Having access to an extra 50k at great rates is a very good thing just know what you are getting and keep an eye that the deal doesn`t change to something you don`t expect.

 

[Cargren]

QUOTE (ThomasBeyer @ Mar 8 2010, 01:46 PM) That`s a great rate for a VISA card. TAKE IT !

Will it go up if you don`t pay ? Is this for an intro period only ? Did you read the fine print ?

What bank is that with ?

I too would like to know bank and if time limit on this rate?

 

[Nir]

Hi All,

CIBC is the bank offering this on VISA! perhaps just for BUSINESS ACCOUNTS holders though(?)
I am waiting for final approval and confirmation of the conditions being non-temporary.
on the other hand I guess nothing can prevent them from increasing interest in the future like they recently did on LOCs.
therefore, even if not just for 90 days... can go up in future(?)

Thanks and Regards,
Neil

 

[OlegP]

QUOTE (investmart @ Mar 10 2010, 01:01 PM) Hi All,

CIBC is the bank offering this on VISA! perhaps just for BUSINESS ACCOUNTS holders though(?)
I am waiting for final approval and confirmation for the conditions being non-temporary.
on the other hand I guess nothing can prevent them from increasing interest in the future like they recently did on LOCs.
therefore, even if not just for 90 days... can go up in future(?)

Thanks and Regards,
Neil

You are correct in saying that interest rate may change in the future. However, the difference is that on VISA they frequently give you an introductory low rate, which shortly after will go back to 18-19%. Even unsecured LOC interest tends to stay within 2% of prime rate. Also, the advantage of LOC is that in many (not all) cases you can pay interest only, which can be useful for cash flow purposes. VISA most likely will expect you to pay principle + interest.

So you need to assess your need for an additional credit product with full understanding of how you will be able to use it. Keep in mind, that often mortgage lenders when calculating your ratios will assume a 3% balance on your unused credit trades (That`s right! Even if balance on them is zero). So having unnecessary credit products may harm you.

 

[Nir]

QUOTE (OlegP @ Mar 11 2010, 09:45 AM) You are correct in saying that interest rate may change in the future. However, the difference is that on VISA they frequently give you an introductory low rate, which shortly after will go back to 18-19%. Even unsecured LOC interest tends to stay within 2% of prime rate. Also, the advantage of LOC is that in many (not all) cases you can pay interest only, which can be useful for cash flow purposes. VISA most likely will expect you to pay principle + interest.

So you need to assess your need for an additional credit product with full understanding of how you will be able to use it. Keep in mind, that often mortgage lenders when calculating your ratios will assume a 3% balance on your unused credit trades (That`s right! Even if balance on them is zero). So having unnecessary credit products may harm you.

Hi Oleg, are you saying most banks will assume 3% of of the limit meaning $1500 in the 50K limit example above!?
if true, then unfortunately holding such a card significantly worsens your TDS. Thanks.

 

[OlegP]

QUOTE (investmart @ Mar 12 2010, 03:32 PM) Hi Oleg, are you saying most banks will assume 3% of of the limit meaning $1500 in the 50K limit example above!?
if true, then unfortunately holding such a card significantly worsens your TDS. Thanks.


That is correct. It is part of risk management practices. If you have available credit, they have to prepare for the fact that you may use it. If you use it, they have to be sure that you can make payments on that card in addition to making payments to them. So be careful about getting credit products "just in case". By the way, the same logic applies to second mortgages/VTBs even if you negotiated paying a lump-sum at the end of the term. The bank will put a number in for you on the off-chance you have to start making payments.

 

[Nir]

QUOTE (OlegP @ Mar 13 2010, 05:27 PM) That is correct. It is part of risk management practices. If you have available credit, they have to prepare for the fact that you may use it. If you use it, they have to be sure that you can make payments on that card in addition to making payments to them. So be careful about getting credit products "just in case". By the way, the same logic applies to second mortgages/VTBs even if you negotiated paying a lump-sum at the end of the term. The bank will put a number in for you on the off-chance you have to start making payments.

so LOC is better because on LOCs banks assume a debt closer to 0.3% of the limit a month instead of 3% a month on VISA
regardless of the current/actual interest(?)

 

[OlegP]

QUOTE (investmart @ Mar 13 2010, 06:43 PM) so LOC is better because on LOCs banks assume a debt closer to 0.3% of the limit a month instead of 3% a month on VISA
regardless of the current/actual interest(?)

Hi Neil!

I am not sure about 0.3%, and these practices certainly vary from one bank to another. However, the calculation is definitely somewhat different for LOC because a) if it is a HELOC, you pay interest only at prime rate; b) if it is an unsecured LOC, you in many cases also pay interest only at prime + 1 or 2%. Compare it to a credit card where you have to pay principle & interest, and interest is much higher than that on LOC, you can see that LOC does not impact your ratios nearly as much as credit card. Knowing that banks treat LOC more liberally than credit cards.

Generally, credit cards are good for giving you a short term solution, but I would not recommend using them for, say, financing your next property, as if the introductory rate expires and goes up to its usual level, you will have a massive payment to make every month.

Oleg

 

[Nir]

Thanks Oleg for the Great advice!

 

[Nir]

Hi, an update:
Yes, there was a catch: in small letters they mentioned something like as low as 1.5% above prime.

they never approve that P+1.5%(!) unless I guess you have a million dollars cash or something.

However, they approved Prime + 4% and also provided related cheques with same conditions.. also, it`s not just a 90 days offer or something so no catch here.

bottom line still much better than a regular visa and I decided to accept it.

Regards,
Neil