Can They Jack UP Your Rates?
A recent post on Moneyville shared an example of an individual’s unsecured line of credit interest rate being raised by a full 3%. The piece states that many people with unsecured lines of credit with TD Bank will be receiving a notification about their accounts. Of the people receiving these notices, 60% will see their rate increase, while only 40% will see their rate decrease. Whether or not all of these customers have the same rate now or not was not mentioned.
This is the deal with lines of credit. Dig out your own line of credit agreement and look. You’ll see a term or condition that states the conditions under which they can raise rates, usually a spread from zero to a specified maximum percent above prime that you, the borrow, have agreed to. This is also the case with HELOCs and all-in-one mortgage accounts. Many of these accounts raised their rate from a previous level of matching prime to prime plus one in most cases. Some of your clients, or even you, may have experienced this. Some of these accounts have relaxed back to prime plus a half, but some have stuck to the prime plus one percent.
This is why lines of credit of any kind should be used as tools to pay debt down rapidly rather than to carry debts indefinitely. Lines of credit are financial power tools; use them to make the work of paying down debt more efficient, not to dig a bigger hole!