Will interest on a secured line of credit increase after CP?
Will interest on a secured line of credit increase after CP? I am considering a consumer proposal because I cannot afford more than the interest payments on my unsecured debt. I also have a secured line of credit but was told that the bank may increase my interest rates or my minimum monthly payments on the secured LOC after I file a consumer proposal (some of my unsecured debt is with the bank who holds my secured line of credit). Is this information correct?
A consumer proposal is a great option for those that can afford to make payments to their creditors but cannot keep paying only the minimum payments, with no progress being made in reducing the overall debt level. It is true that a secured line of credit needs to be maintained outside of the consumer proposal. Often the secured creditor will suspend borrowing privileges. This means that the line of credit is frozen at its current balance and payments will no longer free up available credit that can be used. The interest rate does not necessarily increase, but a larger payment may be required, in particular if you were currently paying interest only. It is up to the creditor and the contract you would have signed when you borrowed the money originally exactly how this is handled. It is also possible the secured creditor may demand payment in full if they are not confident of your ability to continue payments. Each bank has their own way of handling this so we commend that you discuss with them what would happen before you file your consumer proposal.