Negotiating a Line of Credit Interest Rate

Commentators frequently recommend that people negotiate the interest rate on their mortgages, lines of credit, GICs, and other loans and investments. But not much is usually said about how to go about such negotiations. I don’t have all the answers, but I did recently negotiate for a better interest rate on a line of credit. The process surprised me in a few ways.

I have an unsecured line of credit that has been mostly dormant for 17 years. A recent temporary need for money led me to use it and find out that the interest rate I’m being charged is prime+4.5%. After a quick poll of friends, it seemed that I could certainly do better. I decided to do what I could to reduce this interest rate as quickly and easily as I could.

I figured the easiest way to proceed would be to simply call the bank’s general phone number and provide an update on the 17-year old information they have about me. Surely it would be obvious that my financial circumstances warrant a lower interest rate.

Unfortunately, the call didn’t go at all as I planned. The call centre person said he couldn’t just reduce my interest rate. I’d have to apply for a new LOC which would involve a credit check. This last bit of information was conveyed with a tone implying that having your credit checked is a fate worse than death. To avoid such calamity I should go to my bank branch where they might be able to help.

The next day I called my branch, made it through the telephone menu system, and somehow ended up talking to someone at a call centre in another city. I tried my first approach again, but was assured that getting a lower interest rate was some sort of impossible goal without first talking to someone at my branch.

The call centre connected me to my branch where a bank employee assured me that we couldn’t handle this over the phone and I’d have to make an appointment to visit a specialist at the branch. After insisting that a delay of more than 2 weeks was unreasonable, I got a Saturday afternoon appointment.

My wife and I arrived on Saturday armed with every piece of paper we could think of that might be needed. In the first 30 seconds of the meeting the bank representative told us that she was prepared to use her discretion to give us a 1% interest rate reduction. My first thought was that surely this could have been handled over the phone, but I bit my tongue.

The bank representative also said that this 1% reduction was all anyone at the branch had the authority to offer. My first two attempts at asking who did have the authority to authorize a bigger reduction met with a stream of words that ended with repeating that 1% was all the branch could offer.

I can see where many people would have given up at this point. It seemed impossible to get anyone with some authority to actually look at our financial situation and make a sensible determination of an appropriate interest rate for our LOC. I decided not to be put off and insisted that the bank must employ someone with the authority to set a reasonable interest rate and that I wanted to deal with this person.

The representative went off to talk to a superior for quite a while and returned to announce that she could take our information and send it in to some sort of centre where they would take into account our “entire banking relationship” and determine an interest rate. This finally brought us to the point where she took our personal financial information.

At this point the most surprising part of this story happened: she didn’t want to know my income! She took all kinds of information about assets and liabilities, but even after I brought it up, she still didn’t want to know my income. This didn’t give me any confidence that the bank would make a sensible choice of interest rate.

When the promised date for an answer came and went, I started leaving messages. A few days later the bank representative finally told me that my LOC interest rate would be lowered to their base rate, which is prime+3%. That still doesn’t seem great, but taking off 1.5% helps. The term “base” is amusing; it clearly implies that I’m getting the very best rate possible, which seems unlikely. At least I’m not paying more than this so-called base rate.

After all this, my lesson is that the bank’s approach wasn’t so much to say no as it was to avoid answering the question. Their strategy was to put me off and hope that I would give up. In a sense they have partially succeeded because I probably won’t bother to go to one of their competitors looking for a lower interest rate.