I might be missing something here.. if you were to borrow $6000, would you have to start paying on it right away, as in the month following your purchase?

Or is this loan mechanism designed for you to borrow money now, and interest accrues up until 2017, and THEN you start paying on it?

If it is your typical line of credit.. in which you begin paying the month after you borrow the money.. you'll likely have to pay about 2% - 3% of the amount borrowed as your minimum monthly payment. So here you'd be looking at $120 to $180 a month as a payment.

IF, on the other hand, you are supposed to wait until 2017 to start making your payments.. the loan balance is going to be CONSIDERABLY higher then it would be if you started making payments right away.

I don't know what the interest rate is on the card. So I'm going to calculate some numbers for you.

If you start payments 7 years after you borrow $6000 here is what that looks like:

Year 6% 12% 18%
2010 $ 6,360 $ 7,080 $ 8,160
2011 $ 6,742 $ 7,930 $ 9,629
2012 $ 7,146 $ 8,881 $ 11,362
2013 $ 7,575 $ 9,947 $ 13,407
2014 $ 8,029 $ 11,141 $ 15,820
2015 $ 8,511 $ 12,477 $ 18,668
2016 $ 9,022 $ 13,975 $ 22,028
2017 $ 9,563 $ 15,652 $ 25,993

Payment Range is $ 191.26 - $286.89 at 6% , $ 313.03 - $469.55 at 12% , and $ 519.87 - $779.80 at 18%

And if you wait a year before borrowing.. and do it for 6 years.. this is what it looks like:

Year 6% 12% 18%
2011 $ 6,360 $ 7,080 $ 8,160
2012 $ 6,742 $ 7,930 $ 9,629
2013 $ 7,146 $ 8,881 $ 11,362
2014 $ 7,575 $ 9,947 $ 13,407
2015 $ 8,029 $ 11,141 $ 15,820
2016 $ 8,511 $ 12,477 $ 18,668
2017 $ 9,022 $ 13,975 $ 22,028

Payment Range is $180.44 - $270.65 at 6% , $279.49 - $419.24 at 12% , and $440.57 - $660.85 at 18%

So more information would help me be more precise with this..

When exactly do you begin the repayment process when you borrow.. what is the interest rate... and what percentage do they calculate what the minimum payment is supposed to be?

Hope this helps...

Thank you for your time to craft that thoughtful response, DavidBiddy--it's much appreciated. The numbers certainly do grow in some ways that make me gulp!

I think your questions speak to part of my confusion. (IOW, I am not sure.)

I am not repaying the loan itself while I am in school. I pay down the interest monthly while I am in school (my financial advisor told me I could use the loan to pay off the loan, which sounds ominous). My loan rate (since this is Canadian) is 4.5%. The credit card attached to my SLOC is at 19%.

My impression is that the SLOC functions like a giant credit card--but I am unknowledgeable about finances and not really confident about what I do know.

Thank you for the additional information.

Here's the thing.. the SLOC at 19% is a very dangerous loan.

If you were to charge $6000 on it.. and you're only required to pay the interest each month.. it would cost you $95 per month.

Assuming you ONLY borrowed the $6000 and never charged up anything else.. by 2017 you'll have paid:

$95 X 12 months/yr X 7 years = $7980 in INTEREST alone. You'll still have to pay the $6000 (plus more interest) after 2017.

Now. in 7 years time... would you not have to use the SLOC for car repairs, and for other expenses. Travel back home maybe? Plane tickets?

The company lending you the SLOC.. is hoping beyond hope that you will max yourself out to the tune of $45,000. They want you to keep borrowing so that $95 interest charge grows to $712 PER MONTH

If you want to know how to calculate the interest charge on the amount borrowed.. this is how:

Balance X 19% / 12

You need to divide by 12 because this is a MONTHLY charge.

If I could give my honest assessment.. You would be better served buying a car with cash and putting away $95 a month in something that will EARN you interest.

Do you have a source of income? Part time job maybe?

Also.. you are correct in that the SLOC functions just like a giant credit card.. except in one respect. The interest only aspect of it is what makes is so bad.

Banks would KILL to be able to have interest only credit cards out there to the average consumer. By Law, they HAVE to set the minimum payment between 2% and 3% of the balance so that SOME principal is reduced each month.

Somehow.. because you are a STUDENT, the SLOC has somehow gotten around this... and can literally put you in a position in which you can pay them interest FOREVER.

Are you allowed to payback principal with your SLOC? if you are.. then I would suggest paying $120 - $150 instead of their interest only charge of $95

If you don't have a choice except to borrow.. then do it at 4.5%.. I would honestly not put ANYTHING on the SLOC at 19%.

And one last thing... borrowing from one thing to pay interest on another (like your planner said) is doing you a HUGE disservice. You will be paying INTEREST on the INTEREST if you do that.

So conceivably.. if all you did was borrow $6000 on the SLOC.. and you made your $95 payment from another loan (or your student loan).. by 2017 you'll have

$6000 to payoff from the SLOC
$7980 to payoff on another loan

plus any other debt you have.

There must be another way for you to get a vehicle without this loan.

Paperclip.. if at all possible.. do not graduate with the heavy burden of debt on you.

If you read books.. read "The Richest Man in Babylon".. it a short book but it's incredible.

Hi Paperclip,

Here is something to consider: Many car companies (Kia, Honda, Ford, Toyota) will have promotions where you can buy a vehicle with 0% interest for 60 to 72 months.

Also, you are going to need this vehicle for 7+ years.

You may be better off looking into a new car and paying it out over the 60 or 72 months while you are in school. That gives you a dependable vehicle with a warranty, and it should be within your budget if you get one of their entry level (i.e. budget/economy) vehicles.

Just a thought...

DavidBibby,

Thank you for taking the time to use your knowledge to help me out! I think what I have learned from this is that I need to hang out at Craigslist bicycle subforum and find a commuter. After I'm done my masters, I'll earn more in my teaching position and should be able to afford a (motorized, air conditioned) vehicle.

Thanks very much! I appreciate your help.

jp2code--that's an interesting idea! Unfortunately, as a Canadian with zero credit history (well, I have great Canadian credit history, but that doesn't count) I can't get any real loans here while living on a stipend until I build my credit. Thanks, though!

You mentioned cragslist and I think it would be best to check there for a car if you really need one. Minimizing debt while in school is the wisest decision, it begins to grow and eventually consume you.

Bikes are great if you are close to work, or get a scooter, they are cheap and convenient as well as using lest gasoline than a car.

are you allowed to work? if all of your other expenses are covered a part time job can:
1. usually guarantee new car credit from auto dealers
2. allow you to earn enough to cover the payment
then again you'd need to have the part time necessary to work a job around your studies

Nope, not allowed to work beyond the 20hrs/wk that I already am.

I bought a sweet 80s bike, though, and plan to put some kms on it and make it my vehicle.

Awesome Paperclip!,

When you're income is limited, you don't want to be drowning in debt payments.

Congrats on the bike!