LOC Payments

[hkmedbound]

Once you start taking money from your LOC, are you required to start paying every month? Or can you wait until your residency (with interest accumulating obviously).

[Jochi1543]

You don't have to pay out of pocket til 12 months after your residency (or fellowship, assuming fellowship is directly after residency). But yes, interest will continue to accumulate on your LOC the entire time, so you are paying indirectly.

[Steve-0]

Originally Posted by Jochi1543

You don't have to pay out of pocket til 12 months after your residency (or fellowship, assuming fellowship is directly after residency). But yes, interest will continue to accumulate on your LOC the entire time, so you are paying indirectly.

Is that right? I'm pretty sure I am required to pay the interest monthly. Only the principal waits until a year out of residency.

[youngdad]

Originally Posted by Steve-0

Is that right? I'm pretty sure I am required to pay the interest monthly. Only the principal waits until a year out of residency.

Yes but you have options where you can get the interest payment to be deducted from your LOC, thus increasing the principle. This is less common than the student setting up a checking account (if you don't already have one at that bank) and arranging automatic withdrawal of the interest payments. The money that is dumped into the checking account will be from the LOC (or anywhere else if you have cashflow) so the effect is the same. The LOC is thus making the interest payments on the LOC. The "advantage" of doing it through the checking account is that it allows the student to "manage" the interest payments by keeping an eye on every dollar that is taken out of the LOC. The disadvantage is if you empty the checking account (say after tuition or something) and an interest payment tries to get taken out but there are no funds, it is reported as a missed payment on your credit report. If it is automatically deducted from the LOC that problem never happens, but it seems most banks prefer the client to set up a checking account.

[xi88]

You can get the interest payments added on to the principle, and therefore you realistically dont make payments.

However, if you have the money to pay the interest charges in your checking account, you should pay it because otherwise, your interest payments increase each month unneccesarilly.

[Steve-0]

Originally Posted by xi88

You can get the interest payments added on to the principle, and therefore you realistically dont make payments.

Well you do make the payment... from your LOC. Therefore the principal that you have borrowed from the LOC increases, and therefore next months interest increases. Then next month you pay the (increased) interest with the LOC, further increasing the amount borrowed, which increases the next months interest payment, ect. This is different than if the interest just accumulated, as it ends up costing you (probably much) more.