Taking out a loan when not needed?

Lupa_2

Hi,

I’m just about to start my second year at uni, and due to having a little money in the bank (through inheritance – grandparents), being part of a low income family and having a yearly university scholarship of £1000, I did not take out a loan last year. I am now almost back to where I was financially, before paying last year’s tuition fees, and have therefore not taken out a loan this year either.
However, I have been reading about the possibility of applying for the maximum loan and then putting it into a high interest account and leaving it to make interest, so that when I come to pay it back I will have made money. I have very little financial knowledge and come from a ‘loan = bad’ background mentality; so don’t really know what to do.

Are there any students here that have a similar situation, and if so what did you, or what are you going to do? Is the amount of possible interest worth the hassle?

Thanks muchly

-Lucy

Valley's_girl

Hi Lupa :hello: welcome to mse.

A lot of students use their loans and overdrafts facilities, and put the money
into a high interest account to earn some interest.
I am sure someone more knowledgeable will be along shortly.
Best wishes
Ally x

Chris2685

That's what I did. Took out the maximum loan to stick it into an ISA. It is good to have it there as a safety net if you ever need it, and it is earning more money in the ISA than you will have to pay back in tax. The only time it's not a good thing to take a loan when you don't need to is when you have very low will power and will end up spending all the money AND pay interest on the loan, then it is not such a good idea.

But if you think you can be disciplined enough to leave it in savings unless you REALLY need it, then it is a good little money maker, and the loan amount over 3 years can certainly help towards your deposit for a house, or whatever, or you can just leave it there to keep compounding!

La-Cara

I did this last year and will do it again this year. I think you pay about 4% interest on the loan, so any bank account that pays more than that will make you a little profit. Also, I think it's a good idea to take the loan out even if you think you won't need it just in case of emergency.

Lupa_2

Thanks for the advice!
I think I will take out a loan and put it in an ISA... I suppose it makes sense in the end. Especially as a safety net.

Thanks again!

-Lucy

Rikki

Lupa wrote: »

Thanks for the advice!
I think I will take out a loan and put it in an ISA... I suppose it makes sense in the end. Especially as a safety net.

Thanks again!

-Lucy

I've encouraged my son to do this too.

The loan repayment rate for this year is 3.8% so anything paying more than this is earning you money. ISA's being best as they are tax free and remain so even if you end up in a position when you have to pay tax.