Line of Credit: prime rate, base rate, variable rate

What's the difference between prime, base, and variable rates?

Recently, I went to Bank of Montreal to apply a line of credit. I thought the prime rate was pretty low currently at 2.25%, so perhaps it would be a good time to apply for LOC. However, I was wrong.

When I got the reply from BMO, the financial officer told me that if I would like to apply for an LOC $20,000, I had to show them a statement of $40,000 I currently had in my RRSP account. I guess they want to use that as a guaurantee for the creditline. That was no problem for me. However when I asked about the interest rate, the answer shocked me. The rate would be 7.5%!!! 😯 Of course, you will probably know the next question I asked—how is the line of credit interest rate calculated?

In summery, for a $20,000 line of credit:

  1. Proof of $40,000 RRSP asset
  2. Interest rate 7.5% = 2.25% prime rate + 2.5% base rate + 2.75% variable rate


The way BMO calculates their rate puzzles me a lot. I did online search many times, and all I could find is that the rate for LOC is calculated as prime + variable rate. I couldn’t find any site that says LOC rate = prime + base + variable.

I really wish someone shed some light on this rate matter for me!!! Anyone has the same situation as me with BMO???

Perhaps BMO is not a good bank for borrowing money. They will probably lose many clients for that weird rate formula.

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5 Responses to Line of Credit: prime rate, base rate, variable rate

  1. vivek on 2015/01/08 at 6:17 pm

    Hi From which ban one can get lowest rate on LOC?? Any ideas guys

  2. Gerard on 2011/06/05 at 1:20 pm

    BMO offered me a line of credit one day when I was in the bank for something else, and it’s also at an incredibly high rate — basicallly, it’s a slightly discounted credit card.
    Msybe it’s not exactly the same product as other banks are offering. Still, it’s so expensive that I never use it. My (non-BMO) credit card is actually a better deal, once I factor in the grace period and the free aeroplan points.

  3. Jason on 2010/03/02 at 3:50 pm

    I have an $25k unsecured line of credit at the Royal Bank for 5.3%. Sounds like BMO is trying to rip you off.

  4. Ryan A. Smith on 2009/08/26 at 12:09 am

    I think I’ll try different banks next year. I’m afraid my credit score will suffer if I apply to many banks. I don’t need LOC really at this moment, but I just wanted to try it out and see what rate I would get, which turned out to be a disaster wth BMO.

    Do smaller banks and credit unions offer better rates than those five major banks (RBC, BMO, CIBC, Scotia, TD)?

  5. Julian on 2009/08/25 at 7:23 pm

    Hi there Ryan,

    Stay away from BMO!

    I got an unsecured line of credit for 11K from a different bank at prime + 2. Not sure what BMO’s variable rate is – generally you pay a ‘prime’ bank rate, now at 2.25 plus an adjusted increment based largely on your credit score.

    If your credit is good and you have secured the loan, you shouldn’t pay much more than 2 points above prime. Check out the competition, I suggest.

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