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Should I use my capital or take out a loan?

trevored Posts: 52 Forumite

19 April 2006 at 11:16PM in Loans

Hi
My dilemma is this: I'm about to have some home improvements which will cost £10,000.

I have £10,000 in an A&L ISA earning 5.2% interest (about £520 pa). Should I use that in a lump sum to pay for the work or should I take out a loan for £10,000 at 5.6% then pay the loan off in 12 installments?

My reasoning is that to borrow the £10k over 12 months would cost me about £350 in interest, but if I withdrew the £10k from savings that would, in effect, cost me £520 (in lost interest).

In addition, the amount left in savings whilst I paid the loan installments would itself continue to earn interest thus offsetting the interest charges on the loan.

I think the loan is the right option...am I right is is my logic flawed (it's getting late & I'm tired)?

This discussion has been closed.

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Should I use my capital or take out a loan?

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