How Do Student Lines of Credit Work and What to Expect

Student lines of credit can be a game-changer for students who need to cover unexpected expenses, but it's essential to understand how they work and what to expect.

A student line of credit is a type of loan that allows you to borrow money as needed, up to a predetermined limit, without having to reapply each time.

You'll typically need to make regular payments, usually monthly, to pay down the balance and avoid interest charges.

Some student lines of credit come with a fixed interest rate, while others have a variable rate that can change over time.

As you borrow money, you'll need to keep track of your balance and make payments to avoid going over the credit limit.

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A student line of credit is a flexible financial option that allows you to borrow only what you need, up to a certain limit.

With a line of credit, you only have to pay back the money you originally borrowed, not the entire limit. For example, if your line of credit has a $12,000 limit and you borrow only $4,000, you'll only have to pay back the $4,000 and the interest accrued on this sum.

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You only pay interest on the money you borrow, not on the entire limit. This means you'll save money on interest compared to a loan where you receive a set amount of money and have to pay interest on the total amount.

The interest rate on a student line of credit is typically lower than what's offered on government student loans. However, you'll start paying interest from the moment you borrow money, whereas with a government student loan, you won't start paying interest until you finish your program or leave school.

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There are two common types of student lines of credit in Canada. A student line of credit is a standard line of credit designed for students enrolled in a post-secondary school.

Professional student lines of credit are for students pursuing professional degrees, such as medical, dental, or law school. These lines of credit often offer higher limits and longer grace periods for select academic programs after you complete your training.

Here are the two main types of student lines of credit:

A line of credit is a unique type of loan that's worth investigating. It's distinct from other loans, and its benefits make it a superior option in many cases.

One key difference between a line of credit and a personal loan is how the money is disbursed. With a line of credit, money is disbursed in an as-needed draw, whereas with a loan, money is disbursed all at once.

A line of credit also typically has a variable interest rate, which is calculated only on the amount of money you use. In contrast, a loan usually carries a fixed interest rate, and monthly payments are based on the full loan amount.

A line of credit is usually unsecured, which means it doesn't require collateral to secure the loan. This makes it more favorable for borrowers.

Here are some key differences between a line of credit and a payday loan:

These differences highlight the benefits of a line of credit over other types of loans. It's a versatile and flexible option that's worth considering for your financial needs.

Borrowing flexibility is a key benefit of student lines of credit. You can borrow what you need up to your credit limit, giving you more control over your finances.

With a traditional student loan, you typically receive a fixed amount, which may not be enough to cover all your expenses. This can leave you with a shortfall, forcing you to seek additional funding.

A student line of credit, on the other hand, allows you to borrow what you need, when you need it. This flexibility can be a huge advantage, especially if you're not sure how much money you'll need to cover your expenses.

If you need more than the initial amount you borrowed, you'll typically have to submit a new student loan application with a traditional loan. This can be a hassle, and may even require additional paperwork and processing time.

To qualify for a student line of credit, you must be a Canadian citizen or permanent resident enrolled in a certificate, apprenticeship, degree or diploma program at a Canadian or American post-secondary school.

You can also be an international student enrolled in a Canadian graduate program, but you'll need a co-borrower who is a Canadian citizen or permanent resident.

To apply for a student line of credit, you'll need to fill out the lender's application form, which can be done in person at a branch. Be prepared to provide details about your identity, money situation, credit history, education, and information about your co-signer if needed.

You can apply for a student line of credit at any time, either online, over the phone, or in person. You'll usually be asked to provide proof that you're a full-time or part-time student at a recognized Canadian post-secondary institution.

If you don't qualify on your own, you'll need a co-signer, often a parent or guardian, to sign your line of credit application and become responsible for the outstanding balance if you can't make payments.

To review eligibility criteria, you'll first need to check if you meet the lender's requirements. You must be a Canadian citizen or permanent resident enrolled in a certificate, apprenticeship, degree, or diploma program at a Canadian or American post-secondary school.

You can also qualify if you're an international student enrolled in a Canadian graduate program, as long as you apply with a co-borrower who is a Canadian citizen or permanent resident.

Here are the specific requirements to keep in mind:

It's worth noting that parents can't open a student line of credit on behalf of a student; the student needs to apply themselves. However, if you're a parent, you can cosign for a student line of credit, which can help the application process.

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Access to money when needed is a crucial aspect of a student line of credit. You can access funds almost right away if your application is approved and you've signed all the necessary documents.

With a credit limit up to $100,000, you can transfer the money into your chequing account, making it convenient to access funds when you need them. This can be a lifesaver during unexpected expenses or financial emergencies.

You can access the available credit in your student line of credit immediately after you've signed all the necessary documents and your application is approved. This means you can get the money you need quickly, without having to wait for a long period.

There are several ways to access the available credit, including:

Make it a point to borrow only the genuine sum you need to cover your needs while studying, and check whether you'll be able to make at least the interest payments while you're studying.

A student line of credit is especially handy for covering unexpected expenses, like a coffee spill on your laptop, which can be financed right away.

You can move the money into your chequing account without needing to reapply for a loan, making it a convenient option.

A new laptop can be purchased without delay, unlike with a traditional loan where you might need to reapply for more money.

Interest on a student line of credit starts accruing from the day you withdraw money and continues until you repay the entire balance. This means you'll need to pay interest on the borrowed amount, even if you're still in school.

Your credit score plays a significant role in determining the interest rate on your line of credit. A high credit score can result in a lower interest rate, signaling less risk to lenders.

You'll need to pay at least the interest even while you're studying, and after graduation, you'll have a grace period to pay only the interest on your line of credit for a few months. This period can range from 6 to 12 months, depending on your financial institution.

Here are some key repayment terms to keep in mind:

Interest-only payments are a key feature of student lines of credit. You'll typically need to pay only the interest on your account while you're in school.

This means you won't have to worry about paying back the principal amount you borrowed until after you graduate. You can choose to pay more than the minimum interest-only payment at any time to reduce the principal owing and minimize interest charges over time.

Paying only the interest while you're in school can help keep your payments manageable, even if you're on a tight budget. However, keep in mind that you'll still need to make the minimum interest-only payment each statement period.

Here's a breakdown of what you can expect:

It's worth noting that you can start paying back the money you owe at any time, even while you're still studying. Be sure to talk to your financial institution to find out their student line of credit repayment terms and conditions.

Interest rates on student lines of credit can fluctuate, which means your monthly payment and costs can go up or down. This is because the interest rate is tied to the Bank of Canada lending rates and the financial institution's prime rate.

Recommended read: Personal Line of Credit Rates

Your credit score plays a role in determining the interest rate on your line of credit, with a high credit score resulting in a lower interest rate. A high credit score signals less risk to lenders.

Variable interest rates may rise and fall over time, affecting the amount of your payments from month to month. This can be unpredictable and may require adjustments to your budget.

You can choose to pay more than the minimum listed on your statement, or just the minimum when your budget is tight. However, missing a payment can put you at risk of defaulting on the loan.

Here's a summary of the interest rate types:

You'll need to factor the potential fluctuations into your budget as you pay back the line of credit.