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Is the traditional line of credit going obsolete?

Established Contributor

Re: Is the traditional line of credit going obsolete?

I also agree that many "0%" offers are not really zero. There is often a flat balance transfer fee, often as high as 3%, which I think of as being part of the APR and to me it's kind of slimy that the APR is stated as zero when in fact you pay 3%.

Plus if that's a 6 month offer it's actually 3% for half a year which is really 6.09% and not 3%.

And if you only need the money for a shorter time, say you need to borrow to cover an expense only until you get your next payroll deposit, that 3% could in reality be more like 42% interest if you actually just borrow the money for a month. If you only needed the money for two weeks that 3% fee represents a crazy 1.03^26-1=106.6% interest rate!!!

So when I think of my line of credit, which when I use it is for very short periods of time, it charges me 8.9% interest for the two to four weeks I might need to borrow money for whereas any balance transfer check with a 3% fee is effectively over 42% interest for 30 days borrowing and a whopping 107% interest if you only need to borrow for two weeks.

So no I don't think these offers make a traditional line of credit obsolete, not if you use it as intended, for short term needs.

RBC Visa $11k || Amex BCE $40k || BoA Travel $15k || FirstTech MC $5k || BECU PLoC $10k || Discover Miles $27.7k || CITI DC $19.5k || CHASE Amazon $8.5k || BoA Premium Rewards $21k // AU on DW's Costco Visa $12k FICO 775
Last Inq 04/2018
...
Message 11 of 24
Frequent Contributor

Re: Is the traditional line of credit going obsolete?

@Canadian-In-Seattle I’m not sure I follow your math.

I just opened a line of credit with my employer CU and while the APR is 9.4%, they do specifically call out a daily periodic rate of .02534%. So I would think if I held the balance a full year I would at most pay slightly over 9.4% due to compounding. Am I off base on this?
RBFCU Premier $25K, Sam’s Club MC $20K, Cap1 Venture $20K, Employer CU LOC $20K, Navy GoRewards $18K, PenFed Power Cash $10K, PenFed PLOC $10k, Navy Platinum $5.7K, SMG $5.5K, PenFed Promise $2.5K, Total Rewards $3K, Discover It $1.4K, Cap One QS1 $850, Overstock $17.5K
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Message 12 of 24
Frequent Contributor

Re: Is the traditional line of credit going obsolete?

I re-read again...now I get it. You were talking about paying a 3% bal transfer fee upfront. If you carried the bal for 12 months, then you are at 3% APR. if you payoff early, you pay crazy interest. Totally agree!!
I avoid any bal transfer with an up front fee like the plague. I purposefully keep my PenFed Promise with zero bal transfer fee @ 4.99% APR in case I have the need to carry balance in future.
RBFCU Premier $25K, Sam’s Club MC $20K, Cap1 Venture $20K, Employer CU LOC $20K, Navy GoRewards $18K, PenFed Power Cash $10K, PenFed PLOC $10k, Navy Platinum $5.7K, SMG $5.5K, PenFed Promise $2.5K, Total Rewards $3K, Discover It $1.4K, Cap One QS1 $850, Overstock $17.5K
DC BK13 3/17....TU clean due to EE as of 12/17! EX clean as of 4/18! EQ clean as of 5/4/18!
Message 13 of 24
Valued Contributor

Re: Is the traditional line of credit going obsolete?

I don't think LOC's are obsolete as most banks and CU's offer them. It all depends on how you utilize a LOC.

 

I have one at my bank which has saved my behind several times when I tried to float something or just plain forgot to balance my register (yes, I am an old school Xennial and I still balance my checkbook). A day or two of interest at the bank (13.49%) is literally a few cents.

 

I have a LOC at SSFCU at 7.25%. I mainly got it because (at the time) it was 6% and it was too good to pass up. I justified opening this LOC thinking I could use it for short term needs for a small home improvement project. But to your point, a 0% card for 12 months makes more sense. 

 

Some banks, like Chase, do not like checking/overdraft LOC's because they are not profitable enough. Why allow someone to borrow a few hundred dollars for a few days at $0.03 interest when you can instead have them sign up for a credit card and; if the customer uses it for overdraft, they can charge that customer a cash advance fee (5%) plus daily interest on 20+%? They also like to push HELOCs so that they have a security interest in the funds and usually a HELOC will garner a larger amount used which means more interest. 

 

Rebuilders here love PLOCs, or more specifically the NFCU CLOC because it boosts their credit to debt ratio. But they rarely, if not ever, use it.

 

In the US, personal lines of credit PLOCs do not make much sense as our credit cards offer great rewards, low interest rates and other low rate promotions. Personal lines of credit are far more popular in Canada where APRs and annual fees tend to be much higher than a PLOC which can be as low as 4-5%.


Message 14 of 24
Valued Contributor

Re: Is the traditional line of credit going obsolete?


@Canadian-In-Seattle wrote:
I use my line of credit as an overdraft on my primary checking account. There is no overdraft fee and I can draw up to 10k over my balance. I just pay the daily interest for whatever I used at 8.9%. Then I set up all my credit cards to auto pay from my checking account along with a variety of other bills, rent, insurance, etc.

This ensures that even if I miscalculate, or forget about a bill, every bill and credit card gets paid on time. If I screw up it's just a small amount of interest.

Plus in an emergency I can instantly access the cash using a regular check or an ATM. Which is convenient, because my long term cash savings are in a Marcus account and will take 2 or 3 business days to transfer.

In an emergency or if I make a miscalculation I just pay the 8.9% interest for a couple days until I can get my cash transferred over from Marcus..

I don't PLAN on using the line of credit, but sometimes it happens that I do use it, usually never borrow for longer than a few days.

Could be obsolete if a financial institution allows for credit card overdraft protection, i.e: Bank of America, USAA, Wells Fargo. 

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Message 15 of 24
Frequent Contributor

Re: Is the traditional line of credit going obsolete?

Can you do a LOC bal transfer? For example, I use LOC for a payment, then bal trans to my PenFed Promise with no transfer fee & 4.99% APR? Just curious if that typically works?
RBFCU Premier $25K, Sam’s Club MC $20K, Cap1 Venture $20K, Employer CU LOC $20K, Navy GoRewards $18K, PenFed Power Cash $10K, PenFed PLOC $10k, Navy Platinum $5.7K, SMG $5.5K, PenFed Promise $2.5K, Total Rewards $3K, Discover It $1.4K, Cap One QS1 $850, Overstock $17.5K
DC BK13 3/17....TU clean due to EE as of 12/17! EX clean as of 4/18! EQ clean as of 5/4/18!
Message 16 of 24
Established Contributor

Re: Is the traditional line of credit going obsolete?

Bank of America charges a $5 fee if you use credit card overdraft and then your pay credit card APR rates which are usually very very high. I much prefer my 8.9% APR with no fee if I use it.

RBC Visa $11k || Amex BCE $40k || BoA Travel $15k || FirstTech MC $5k || BECU PLoC $10k || Discover Miles $27.7k || CITI DC $19.5k || CHASE Amazon $8.5k || BoA Premium Rewards $21k // AU on DW's Costco Visa $12k FICO 775
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...
Message 17 of 24
Valued Member

Re: Is the traditional line of credit going obsolete?

My Wells Fargo Checking is linked to my Cash Wise Visa. If say the interest rate is 20% ( I have no idea what the actual interest rate is, I didn’t check) and I need the money for a week because it takes me that long to move money around, that costs me .38%. Meanwhile I’m making 1.5% cash back on the credit card (I assume an overdraft will count as a purchase), so it looks like I would come out ahead.
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Message 18 of 24
Moderator

Re: Is the traditional line of credit going obsolete?


@frencheese wrote:
My Wells Fargo Checking is linked to my Cash Wise Visa. If say the interest rate is 20% ( I have no idea what the actual interest rate is, I didn’t check) and I need the money for a week because it takes me that long to move money around, that costs me .38%. Meanwhile I’m making 1.5% cash back on the credit card (I assume an overdraft will count as a purchase), so it looks like I would come out ahead.

I have a Wells Fargo credit card linked to a WF checking for OD protection, but you only want to use that as a last-resort.

 

The amount transferred does not earn rewards, there's a steep fee (IIRC $20), and the APR will be your cash advance rate, which will start the day of the transfer (no grace period).

Message 19 of 24
Frequent Contributor

Re: Is the traditional line of credit going obsolete?

My longest checking acct. is with BoA, and yes they have enough fees to drive  person crazy and broke. lol

But with my local CU, i have my checking OD's covered by their CC. No fees, uness you carry the balance long enough for the interest to pile up.

But it's only 9.6%, and I can transfer from savnings ASAP to cover until my next pay day deposit. 

 

Message 20 of 24