Below are answers to some common questions about credit in general. If you don't find the answer you are searching for, an RBC Royal Bank® credit specialist would be happy to answer your questions.
Credit is a financial tool used to buy products and services today and pay for them at a future date. Credit products include credit cards, lines of credit, personal loans and mortgages. Service providers like cable, telephone, hydro and gas companies also offer credit by requesting payment—usually once a month—for their services after you've already used them.
A line of credit is a flexible borrowing solution that can be used any way you want. Once you set up your Royal Credit Line® with an RBC Royal Bank credit specialist, you never need to apply again. As long as your account is in good standing and you are not experiencing any debt-related problems, you will always be able to borrow up to your credit limit. You can choose to pay interest only on the amount you've borrowed, or set up regular payments. You can borrow any part of your Royal Credit Line again once you have repaid it. For more information, see Line of Credit.
A personal loan is ideal for financing a major purchase where you need to use all of the money upfront (such as a car). With a personal loan, you receive the full amount of the loan when you're approved and you start paying interest immediately on the full amount. You have a set schedule of payments that will reduce your loan to a zero balance over an established timeframe. For more information, see Personal Loans.
The equity in your home is the difference between the value of your home and the amount you may owe on it. At RBC Royal Bank, you can borrow up to 65% of the current value of your home by using it as collateral for a secured home equity line of credit or personal loan.
For example, if your home is valued at $500,000 and you owe $75,000 on your existing mortgage, then you may be able to borrow up to $325,000 ($500,000x65%=$325,000)
By offering your home as collateral, you may be able to obtain a larger credit limit, at a lower interest rate, than you may be able to obtain with other credit solutions.
Consolidating debt is a great way to help keep track of your payments and can help you save money by reducing your overall interest costs. By consolidating your smaller debts into a single loan, you'll have just one monthly payment and the peace of mind that comes with knowing you are reducing your overall debt load quickly and conveniently. Having a single payment for all your debts over a fixed period of time also means that you are applying a regular principal payment to your debt, which can help reduce your overall interest costs.
One of the most convenient and effective ways to reduce or eliminate debt is to consolidate your various debt (loans, line of credit, credit card balances, etc.) into a single loan with a set repayment schedule. As a result, you will have just one payment to deal with and you may find it easier to pay off your debt more quickly.
When you co-sign a loan for a family member or friend, you are promising to pay the debt if they do not. In other words, if they stop paying for any reason, the lender can ask you to pay as much as the full amount owing. You should also know that as long as the borrower still owes money on the loan, some lenders may include this payment in your total debt service ratio which may reduce the amount you may be able to borrow for your own use.
If you think you may be carrying more debt than you can comfortably manage, ask your financial institution or one of our credit specialists to do an assessment and help you draw up a plan to eliminate your debt.
"Term" refers to the period of time for which the interest rate on a loan is guaranteed. "Amortization" is the length of time it takes to fully pay off a debt with an established repayment plan.
For smaller credit options like personal loans, the term and amortization are often the same. For example, a loan with a 5-year term is likely to have a 5-year amortization. In contrast, a mortgage may have a 5-year term and a 25-year amortization.
For tips and expert advice on managing your credit, call 1-800-769-2511 to talk to a credit specialist.