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What to Know Before You Get a Student Line of Credit

Written by Kevin McGovern

Get interested in interest.

For most students, credit (lines of credit, credit cards, etc.) is the key that unlocks the doors to a post-secondary education.

It might all seem a little daunting at first, but it could really pay off. This could be your first step towards achieving a higher education and finding a career you love.

Sure, what you don’t understand can be a little freaky, especially when it comes to a new responsibility that will affect your life for years to come. But as the old mantra goes, “knowledge is power.” So let’s empower you by helping you to better understand your student line of credit.

One of the most important things to understand when it comes to credit?

Interest.

What is interest?

Interest is a fee you pay to someone who lends you money. You’re paying for the privilege of having the money now, as opposed to having to save for it and wait.

FUN FACT, THOUGH: You can also EARN interest. For example, when you open a savings account, the bank pays YOU a small percentage regularly for keeping your money there. The longer your money stays put, the more interest you earn.

What your interest rate is

Interest is calculated as a percentage of the money you borrow, over a certain period of time. That percentage is your interest rate.

The prime rate often determines the interest rate on your student line of credit. The prime rate is the interest rate that a lender announces as its reference rate.  It can change at any time, meaning your interest rate will change whenever the prime rate changes.

A bank calculates interest on the daily balance of your line of credit at the end of each day and compounds it every month. This means that any unpaid interest will be added to the balance of your Educational Line of Credit.

Think of compound interest as interest on your interest. It can be particularly devastating if you don’t make your minimum payment on time.

What your Interest terms are

While in school, for the CIBC Education Line of Credit, you’ll be required to only pay the interest portion accrued over the month on the amount of money you actually used. This will result in a lower monthly payment amount–making it more manageable during your studies.

If you can, it’s always a good idea to make an additional payment. As a result, you’ll reduce the outstanding balance and avoid paying more interest next month.

After graduating from your program, you’ll have the option of converting your student line of credit to a regular line of credit, or to a personal loan of up to 20 years to help make your monthly repayments more manageable, at the same low rate.  You’ll always have the option of paying off the loan at any time without penalty.

Getting a student line of credit is one of those big life milestones. Like buying a house or car, it’s an official step on the road to “adulting.”

Stay alert about how interest will affect you and your line of credit moving forward, because it can be a great tool if used effectively.

Brought to you by CIBC. General information not about CIBC Financial products is provided for your reference and interest only. The above content is intended only to provide a summary and general overview on matters of interest and is not a substitute for, and should not be construed as the advice of an experienced professional. CIBC does not guarantee the currency, accuracy, applicability or completeness of this content.

*Opinions expressed are those of the author, and not necessarily those of Student Life Network or their partners.