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  • FIRST POST
    • Guru86
    • By Guru86 20th Mar 17, 5:36 PM
    • 201Posts
    • 22Thanks
    Guru86
    Invest a grand or pay chunk off loan
    • #1
    • 20th Mar 17, 5:36 PM
    Invest a grand or pay chunk off loan 20th Mar 17 at 5:36 PM
    Good afternoon

    I recently just took out a loan with sainsburys I got a poor 6% rate over 3 yrs at £275pm. So in 6 months may look to get a better rate on remaining balance.

    Due to getting the car I wanted for a grand less I have left over money. I am looking for people's view on investing this 1000 in something like ratesetter for a year or just pay it off the outstanding balance of loan?

    Thanks in advance
Page 1
    • PeacefulWaters
    • By PeacefulWaters 20th Mar 17, 5:42 PM
    • 6,046 Posts
    • 7,329 Thanks
    PeacefulWaters
    • #2
    • 20th Mar 17, 5:42 PM
    • #2
    • 20th Mar 17, 5:42 PM
    Can you get a guarantee tax free return of in excess of 6% from Ratesetter? It might be possible if you can still get a £100 referral bonus from somebody.

    If not, pay the debt down.
    • economic
    • By economic 20th Mar 17, 5:45 PM
    • 1,173 Posts
    • 546 Thanks
    economic
    • #3
    • 20th Mar 17, 5:45 PM
    • #3
    • 20th Mar 17, 5:45 PM
    pay down the loan. dont even think about it more then that. and dont ever get a stupid loan like that again. only spend stuff with cash never loans.
    • Guru86
    • By Guru86 20th Mar 17, 5:56 PM
    • 201 Posts
    • 22 Thanks
    Guru86
    • #4
    • 20th Mar 17, 5:56 PM
    • #4
    • 20th Mar 17, 5:56 PM
    Thanks for that helpful advice but unfortunately when the wife writes off the car nearly killing herself sometimes you need a loan to get a new car
    • atush
    • By atush 20th Mar 17, 6:33 PM
    • 15,746 Posts
    • 9,534 Thanks
    atush
    • #5
    • 20th Mar 17, 6:33 PM
    • #5
    • 20th Mar 17, 6:33 PM
    Pay the loan
    • AnotherJoe
    • By AnotherJoe 20th Mar 17, 6:34 PM
    • 6,061 Posts
    • 6,386 Thanks
    AnotherJoe
    • #6
    • 20th Mar 17, 6:34 PM
    • #6
    • 20th Mar 17, 6:34 PM
    Thanks for that helpful advice but unfortunately when the wife writes off the car nearly killing herself sometimes you need a loan to get a new car
    Originally posted by Guru86
    Sounds like the money would have been better spent on bus and train fares if that's the sort of thing she does .
    • jimjames
    • By jimjames 20th Mar 17, 11:29 PM
    • 11,696 Posts
    • 9,996 Thanks
    jimjames
    • #7
    • 20th Mar 17, 11:29 PM
    • #7
    • 20th Mar 17, 11:29 PM
    Thanks for that helpful advice but unfortunately when the wife writes off the car nearly killing herself sometimes you need a loan to get a new car
    Originally posted by Guru86
    You can buy cheaper cars though, not every car requires a loan to buy it. I'd pay of the chunk of loan if you can do so without penalty
    Remember the saying: if it looks too good to be true it almost certainly is.
    • kidmugsy
    • By kidmugsy 21st Mar 17, 12:15 AM
    • 9,204 Posts
    • 6,026 Thanks
    kidmugsy
    • #8
    • 21st Mar 17, 12:15 AM
    • #8
    • 21st Mar 17, 12:15 AM
    Thanks for that helpful advice but unfortunately when the wife writes off the car nearly killing herself sometimes you need a loan to get a new car
    Originally posted by Guru86
    Use your savings. If you don't have savings accumulate some. You're not a child any more.
    • Anthorn
    • By Anthorn 21st Mar 17, 12:38 AM
    • 2,973 Posts
    • 774 Thanks
    Anthorn
    • #9
    • 21st Mar 17, 12:38 AM
    • #9
    • 21st Mar 17, 12:38 AM
    Good afternoon

    I recently just took out a loan with sainsburys I got a poor 6% rate over 3 yrs at £275pm. So in 6 months may look to get a better rate on remaining balance.

    Due to getting the car I wanted for a grand less I have left over money. I am looking for people's view on investing this 1000 in something like ratesetter for a year or just pay it off the outstanding balance of loan?

    Thanks in advance
    Originally posted by Guru86
    Depends on the agreement: It's most likely not simply a case of just part-paying the loan and an early settlement / early repayment quote might be needed. I could be better to use the money to make increased payments which will reduce the term and consequently lower the interest. Again it might be necessary to ask your lender for a quote.

    In addition to checking the agreement also check for charges if applicable.

    What I'm inclined to say is that you haven't explored all your options. Could be that you might get a 0% balance transfer card to clear the loan, save on the interest and be able to keep the money left over. Kinda like having your cake and eating it at least for the term of the balance transfer. Again you'll most likely need a quote from your lender to transfer the balance.

    Lastly, it's MSE's way to clear debt before considering saving and who am I to argue with that?
    Last edited by Anthorn; 21-03-2017 at 12:40 AM.
    I don't think and I know I don't think so therefore I am. At least I think so. But hold on I don't think ... er ...
    • mgarl10024
    • By mgarl10024 21st Mar 17, 8:23 AM
    • 550 Posts
    • 355 Thanks
    mgarl10024
    I had a similar situation recently - I had some money and could overpay the mortgage, but with rates so low, would I be better putting it into investments which could give a better return (but because they are riskier could lead to a broader range of possible outcomes - the guaranteed mortgage saving vs. the possibility of greater or lower returns from investments)?

    In the end, I based my decision on how big a risk this was for me personally and how much of my savings proportionately I was putting into it. For example, if we're talking about £1000, and I have a million in the bank then sure, take the punt, why not? But if it is (hypothetically) my last £1000, then I'm going for the security of the mortgage.

    Meaning this to be helpful - if you are resorting to loans for the car, and this is because you do not have sufficient savings to cope with some of life's challenges, then it strikes me that this money is not something you can afford to take a punt on. I'd play it safe.

    (Obviously, if you are a secret millionaire who enjoys taking out car loans for a hobby, you might think differently. )
    • Gadfium
    • By Gadfium 21st Mar 17, 9:44 AM
    • 596 Posts
    • 1,100 Thanks
    Gadfium
    I am looking for people's view on investing this 1000 in something like ratesetter for a year or just pay it off the outstanding balance of loan?
    Originally posted by Guru86
    Are you nuts? What happens if you lose the £1K? If you are having to borrow £9K at 6% then your finances probably can't afford to be gambling in such a way. At best, you might get enough back to cover a year's interest on the £1000, so you break even for the first 12 months.

    I had a similar situation recently - I had some money and could overpay the mortgage, but with rates so low, would I be better putting it into investments which could give a better return (but because they are riskier could lead to a broader range of possible outcomes - the guaranteed mortgage saving vs. the possibility of greater or lower returns from investments)?


    In the end, I based my decision on how big a risk this was for me personally and how much of my savings proportionately I was putting into it. For example, if we're talking about £1000, and I have a million in the bank then sure, take the punt, why not? But if it is (hypothetically) my last £1000, then I'm going for the security of the mortgage.
    Originally posted by mgarl10024
    It's not a similar situation at all. A mortgage is secured on a house. A personal loan is secured on nothing more than the person. What the OP is talking about is borrowing money on a high-rate personal loan and then using that money to invest in a high-risk scheme for 12 months. Borrowing to invest can work, but it needs careful thinking about and a strategy. Its not something to do at the drop of a hat, especially given the high APR and low amounts.
    • picks
    • By picks 21st Mar 17, 9:50 AM
    • 135 Posts
    • 50 Thanks
    picks
    Due to getting the car I wanted for a grand less I have left over money. I am looking for people's view on investing this 1000 in something like ratesetter for a year or just pay it off the outstanding balance of loan?
    Originally posted by Guru86
    It's a no-brainer for me: pay off as much of the loan as you can.
    • mgarl10024
    • By mgarl10024 21st Mar 17, 10:02 AM
    • 550 Posts
    • 355 Thanks
    mgarl10024
    It's not a similar situation at all. A mortgage is secured on a house. A personal loan is secured on nothing more than the person. What the OP is talking about is borrowing money on a high-rate personal loan and then using that money to invest in a high-risk scheme for 12 months. Borrowing to invest can work, but it needs careful thinking about and a strategy. Its not something to do at the drop of a hat, especially given the high APR and low amounts.
    Originally posted by Gadfium
    I agree with everything you have said, except that the situations aren't similar.
    The OP has debt, and has an unexpected £1000, and is asking whether to pay down their debt or to chase higher returns by investing (putting at risk) that £1000.

    The situations are the same as far as I can see. The security of the loan in question had little bearing on the analogy.
    • justme111
    • By justme111 21st Mar 17, 10:09 AM
    • 2,534 Posts
    • 2,411 Thanks
    justme111
    No they are not. Your debt is calculated and expected while his is not.
    • cloud_dog
    • By cloud_dog 21st Mar 17, 10:13 AM
    • 2,969 Posts
    • 1,575 Thanks
    cloud_dog
    Ok so, the question to ask is... How serviceable is the loan repayment (monthly repayment)?

    You've confirmed it has come out of the blue (due to an accident), and costs £275 per month.

    As you don't appear to have used savings for this, I am assuming you have none / very little so, how serviceable is this new not insignificant monthly repayment amount?

    Was the car covered by insurance? I'm assuming yes, so at some point you will receive an amount of money (likely not sufficient to buy a like-for-like replacement but most of the replacements cost).

    Depending on the answer my first question and ignoring other financial considerations, you should simply pay down the loan.

    Just as a side comment, I've funded probably our last 3 vehicles using 0% credit cards. There is/can be a fee but I find them cheaper than loans and far more flexible with regard to repayment / overpayments. I would only recommend this option for someone who is financially 'regimented' otherwise the costs can become horrendous.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • principa
    • By principa 21st Mar 17, 10:20 AM
    • 61 Posts
    • 16 Thanks
    principa
    6% guaranteed return vs investment ? pay off the loan - there is far too much cheaper money out there chasing returns whose owners have & will settle for far less that 6%!
    • Anonymous101
    • By Anonymous101 21st Mar 17, 12:31 PM
    • 922 Posts
    • 289 Thanks
    Anonymous101
    Get a 0% credit card and settle the loan less the £1000... Or get the maximum 0% money transfer you can, settle the loan and invest the rest.
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