Unsecured loan or cash in on ISA?

Twigga

I have about £10000 in my ISA savings. I will however soon need this money. Question is, am I better off leaving my money in my ISA and borrowing £10000 (5.6 % with an unsecured loan Northern Rock, no additional cost for early repayment) or do I take out my ISA (losing 6 months interest at 5% because I'm taking the money out early?

Keeping in my ISA will have the advantage that I have a large sum of money in my tax free savings ... wouldnt be able to build up that amount again.

Thanks for any advice

[Deleted User]

Why not lend yourself the money from the ISA?

Then set up a direct debit to PAY IT BACK! Treat it as a real loan.

It's all on your terms then - and if you find you can't pay it back, at least you won't have a loan company to deal with, nor will you blot your credit record.

danrees

With ISAs you lose your allowance on anything you withdraw...

So that is not a feasible option.

bowlhead99

Danrees, Deleted_User's is actually a pretty feasible option.

You're right that you can't use your previous years' allowance (i.e. the cumulative ones that allowed you to get up to 10k) when "paying yourself back" the money.

However over the next 3 years or so as you pay back the 'loan' to yourself at a couple of hundred quid a month, you'll have a few more years' isa allowances (don't know if you still have the current year). So it's only a major problem if you were planning on paying yourself back the 10k all at once where you'd smash into the annual limit - and I'm assuming you're not doing that because you wouldn't if you'd borrowed from NR.

Remember that just because there is a 3k limit on cash isas in a year there are other options with which you can save or invest after you've done 3k per year:
- mini shares isa
- 'regular savings' accounts at 8%+ (5%+ after tax)
- 1 year saving bonds or other decent savings accounts that you pay tax on: but even if you can only get 3% net on say a grand, instead of 5%, its only £20 less per year.
- a pension, for a bit of it?

Unless you're trying to build up a credit history it's perfectly sensible to avoid borrowing from a third party and paying more interest than you can earn on your savings.


BUT... having said the above, I would personally take the loan and keep the cash for a rainy day !!

You might think that today is a rainy day so why not use the savings ?? Well, what happens if you lose your job or income in a years time and have another rainy day? Try going to the bank and saying you need a £10k loan then, at a nice low interest rate, because you don't have any savings or any income. No can do. Whereas if you have cash in the bank you're fine.

icecubebabe's advice is sensible but does have a slight flaw - if you really have 10k cash in your isa which is completely spare... you don't need to worry about 'finding you can't pay back' the loan. If your stash isn't completely spare because of other commitments at present unknown: you will need a loan in due course anyway.

You will probably get advice saying don't get into debt if you don't need to: it's the traditional advice to give. However if you are being offered cheap cash, at only a little bit more than what your savings earn, and particularly if you can keep your savings somewhere like an isa where you'll be disciplined in not 'dipping into them', I'd seriously take the loan.

Now, whether or not you'll actually get the headline 'typical' 5.4% rate when you actually go through the approval process is another matter!