Every bank in Canada worth its salt offers some variation of a Medical Student Line of Credit. Basically, it’s a big-ass loan from the bank to help pay for tuition and living expenses, and can be for as much as $275,000 as of August 2015.
Since it’s a line of credit, once you’re approved for the loan, you can use as much or as little of the $275,000 as you want, and you’ll only pay interest on the amount that you use, starting on the day that you withdraw the money. Until you graduate from residency, you don’t need to repay what you borrow, but you do need to make interest payments every month, even while you’re in school. This is the main reason why everyone should be applying for a government student loan first, since they’re interest and payment-free until you graduate. But for most people, government loans aren’t enough to live on, and many of us will have to turn to a line of credit to make ends meet.
Fortunately, medical student lines of credit are offered at the prime interest rate, which is an extremely favorable rate usually reserved for the banks’ best customers, e.g. medical students. The prime rate is currently 2.7%, but it isn’t fixed in stone, and can change in an instant based on the whims of the Bank of Canada. The prime rate is hovering just above its all-time low right now, so there’s a good chance it’ll be higher at some point during your medical training career. Hence, it’s a good idea to keep borrowing to a minimum because even a small increase in the prime rate can mean hundreds of dollars a year in extra interest payments.
Since almost every bank will offer you a line of credit of $275,000 at prime rate, you might think they’re pretty much all the same and it doesn’t matter which bank you go to, but nothing could be further from the truth.
The fact is, all the banks do offer the same basic terms, but there are huge differences in the side perks on offer. Each bank wants to win your business and get you hooked on their services so when you’re a practicing doctor you’ll keep taking out loans and mortgages from them. It’s a privilege for them to get you as a customer.
So how do you get the best deal?
Never deal with anyone who isn’t a Medical Student Line of Credit Specialist
If a bank employee’s title doesn’t include the words “medical student adviser” or something to that effect, don’t bother talking to them about a line of credit. Most bank employees don’t deal with medical students very often so the only ones with much expertise are the specialists.
Don’t walk into a bank unannounced and expect to deal with a employee competent in medical student lending. Every bank in every city with a medical school has a specialist just for you – find out who they are and make an appointment to see them.
Call or email all the medical student advisers in your area and ask what’s their best offer on a line of credit, bank account and credit card. Don’t be loyal to any bank just because your parents bank there and you’ve had an account there since you were eight.
If dealing with big banks isn’t your thing, check with local banks or credit unions such as ATB in Alberta, as they often offer a similar deal.
Consider the total package
You need more than just a line of credit. You need a bank account and a credit card too. Most banks have a medical student package that includes a fee-free bank account and credit card. Generally speaking, the bank account and credit card offers are the most significant differentiating factors between the various banks.
Do you want a top-tier credit card, like the TD Aeroplan Infinite, or the RBC Avion Infinite, which come with loads of airline miles and free travel insurance? Ask for it before applying for the line of credit. As a student carrying loads of debt without a steady income, you’re not usually seen as the ideal candidate for the best rewards cards, but it’s an important perk you can negotiate. You can also get the annual fee waived, for at least one year.
As for the bank account, you should expect to get a bank account with zero monthly fees and plenty of free transactions. You should also negotiate a free order of checks (aim for at least 200), as those can come in handy. Some banks offer a certain number of free email money transfers every month, which are really useful for splitting bills or the rent with friends and roommates.
Never forget the golden rule when dealing with banks, that almost any fee can be waived, and exceptions can be made for almost any rule. If the person you’re speaking to says they can’t do it, ask to speak to their supervisor/manager. Someone high enough in the chain of command has the authority to do just about anything.
Not all lines of credit are made equal
There are a few key differences in the actual line of credit between the different banks.
The amount of money you can borrow in one year
Every bank except RBC limits how much you can borrow in a given year. So despite having a total $275,000 credit line, you might only be able to use $50,000 in your first year. For most people, that’s more than enough, but if you want flexibility in case of an emergency, it might be a consideration. Generally, there’s some flexibility on these annual limits when push comes to shove, but that’s just another hurdle to jump.
How interest is paid every month
With Scotiabank and National Bank, your monthly interest is paid automatically by withdrawing even more money from your line of credit to cover it. This is known as “capitalizing” the interest. Since most medical students don’t have a regular source of income and need to borrow money to pay the interest anyways, it can be a very convenient feature.
With TD and RBC, your monthly interest payment must come out of your bank account and can’t be automatically taken from your line of credit. In practical terms, this means you need to make sure you have enough money in your bank account to cover the interest payment on the day it’s due. If you don’t, you’ll be hit with a insufficient funds charge, usually around $35, in addition to penalties for making a late payment. Banks will often forgive you the first time this happens, but it’s one more thing to add to your calendar.
Medical Student Line of Credit Cheat Sheet
I’ve put together a cheat sheet of the various banks’ packages, based on information gleaned from talking to banks, consulting their websites and of course the premed101 forums (a good resource to consult for the latest info). Any of this information is subject to change or be out of date, but it’s a place to start. 🙂
If all else fails, just remember to negotiate and don’t consent to a credit check until you’re happy with what’s being offered. You can always walk away and think about it. 🙂
|Bank of Montreal (BMO)||CIBC||MD Management (National Bank)||Royal Bank (RBC)||Scotiabank||TD|
|Maximum Credit Line||$250K, max $75K/year||$275K||$275K||$275K||$275K (max $50K/year for school plus $75K for residency)||$250K|
|Maximum Credit Line in First Year||$75K||$70K||$50K||$85K|
|Interest Rate||Prime rate||Prime rate||Prime rate||Prime rate||Prime rate||Prime rate|
|Grace Period after Graduation from Residency - Interest-only payments during this time||12 months||12 months||12 months||12 months||12 months||12 months|
|Credit card||No special deal||Student credit card with $1K limit||CMA Platinum Mastercard, with annual fee waived for 2 years||$5K Visa Avion Infinite card with annual fee waived first year||Up to 2 cards, total $10K limit with fees waived (Visa Infinite Momentum and Amex Gold)||No special deal|
|Interest automatically paid from Line of Credit (vs from bank account)||unknown||No||Yes||No||Yes||No|
|Notes||Limits can be flexible|
|Chequing account||No monthly fee|
2 free email transfers/mo
|No monthly fee|
|No monthly fee|
200 free cheques/yr
|No monthly fee|
12 bank drafts/yr
5 free email transfers/mo
|No monthly fee|
$5K overdraft protection
|No monthly fee