Overview of the Tangerine Line of Credit

The Tangerine Line of Credit is offered by Tangerine, which is one of the non-traditional banks in Canada and a challenger to the big 5 banks that dominate the market. While most consumers are familiar with line of credit products, most are unfamiliar with why companies like Tangerine offer them in the first place, and how best to decide whether getting a line of credit is a smart financial decision. In this article, we cover the essentials of lines of credit, provide an overview of the Tangerine Line of Credit products and provide some practical insights into how to decide whether its worth it.

What is a Line of Credit?

Generally speaking, there are three main forms of personal lending products that banks and credit unions offer their customers: credit cards, personal loans and lines of credit. While each of these have many similarities, they have major differences in how they work and what they cost.

  • Credit Cards – these are revolving forms of credit that must be repaid each statement period or the cardholder starts to incur high rates of interest that typically start at 19.99%.
  • Personal Loan – in a traditional personal loan, the bank will provide an amount that you agree to repay over time with interest on an agreed upon schedule.
  • Line of credit – a line of credit is different from a personal loan as while it is also an extension of credit, it isn’t a fixed amount that the bank has disbursed to you as is the case with loans. Instead, a line of credit is an agreement between you and the financial institution that provides you with access to money when you need it, up to an agreed-upon limit. The actual limit depends on several factors including your credit score. In some cases, lines of credit will require co-signers to reassure the bank that any credit that is extended will be repaid.

The interest rate charged for a line of credit is one of the major differences between this product and credit cards. While credit card interest rates are typically 19.99% or higher, the interest rate for a line of credit will often be a small fraction of this.

Tangerine Line of Credit Offerings

Tangerine currently offers three line of credit options to its customers:

  • Tangerine Interest Only Line of Credit
  • Tangerine 2% Plus Interest Line of Credit
  • Tangerine Home Equity Line of Credit

The first two products may appear similar at first glance, particularly due to Tangerine withholding public information about the interest rates for their credit lines. The main difference is in the maximum amount of interest you can owe to the bank at each statement period. With an interest-only line of credit, customers pay only interest accrued during a statement period, which is calculated based on the daily balance multiplied by a fraction of the interest rate. For the Tangerine 2% Plus line of credit, customers have to pay 2% of the drawn balance at the end of the month in addition to the aforementioned accrued interest.

While the interest-only plan might sound better on paper, the second plan is likely to be cheaper to account for the fact that you’re committing to paying more of the credit extension each month, which poses lower risk to the lender. Both the Tangerine Interest Only Line of Credit and the Tangerine 2% Plus Interest Line of Credit have a minimum monthly fee of $25 unless your credit balance is less than $25, in which case it’s equal to the balance on the account. In effect, a credit balance of zero means you don’t have to pay any fees.

The Tangerine Home Equity Line of Credit is the Tangerine Line of Credit option with the most attractive interest rate. This is because the credit that is extended is against your home’s real estate valuation and accumulated equity. Whenever there is collateral involved, the credit extension is referred to as “secured” debt because the loan is secured against an asset of some form. As of this writing, the Tangerine Home Equity Line of Credit has an advertised annual interest rate of 3.60%.

Tangerine Line of Credit Perks

As an online-only bank, one of the major benefits of choosing the Tangerine Line of Credit versus traditional bank offers is convenience. Since all banking is done online, you have a better overview of your financial records and statements. Tangerine accounts, including the line of credit, don’t have an annual maintenance fee (primarily due to a lack of overhead costs associated with physical offices). However, it should be noted that the minimal $25 interest fee and the regular interest fee are still fees that are assessed,

When Should You Get a Tangerine Line of Credit

There are a few ways you can use a line of credit to your advantage. People primarily use lines of credit as a safety line or a way to get funding for major expenditures such as home renovations. However, it’s important to note that lines of credit should be used with caution as they are still a form of debt and as such should only be used if you have the means to repay in a timely fashion. Using a line of credit to pay off more expensive debt such as credit card debt is also another situation where getting a line of credit makes financial sense.

Final Thoughts

The Tangerine Line of Credit can be an efficient and hassle-free way to get access to funds and financial flexibility. However you should only get a line of credit when you have a clear objective and plan to repay any disbursed funds as it is still a form of credit extension and comes at a cost.