Short Term Loan

huggierich

I'm looking to get a short term loan (45 days max) of £3600 to max out my ISA. I was planning on getting a cash advance on my credit card as this is going to cost me 2.075% (£75 ish) and I can pay it off in full the following month.

The £3600 in my ISA would earn 3% AER for the entire 2011/2012 tax year which would cancel out the cash advance fee, and it also means that I don't lose my remaining allowance for this year.

Can anyone think of a better way to do this?

Cheers
Rich

CLAPTON

I think your maths is somewhat doubtful

Simon11

Even if you can get £3,600 this month as a loan at £2, I still fail to see the point?

You only make £2.77 by having the money a month early deducting costs.

I may be wrong, however the ISA ends on April 4th? Why not get paid in March, leaving a few days to quickly get in?

How can you get paid £3,600 in only one month?;)

huggierich

Why do you think that? Have I messed up somewhere?

huggierich

Simon11 wrote: »

You only make £2.77 by having the money a month early deducting costs.

If only that were true. I miss out on £3600 tax free for every year going forward, and if it was roughly at the current rate of 3%, that's a lot.

CLAPTON

you are saying you will have the full 3,600 in 45 days time
so you could anyway invest the 3,600 in 45 days time without borrowing anyway and start earning interest in your ISA

so the comparision is the cost to you of borrowing for 45 days fee of £75 plus wahtever interest cash withdrawals are charged at
agains the interest gained in the ISA for 45 days only.
Now if next tax year you are also going to have the full ISA amount plsus the 3,600 then you will need to adjust for the fact that you miss out on the tax element
but you haven't given suficient information for us to work that out.

huggierich

CLAPTON wrote: »

you are saying you will have the full 3,600 in 45 days time so you could anyway invest the 3,600 in 45 days time without borrowing anyway and start earning interest in your ISA

I could, but then I lose the allowance for this year. Remember I can earn interest, every year that I keep that money in an ISA.

CLAPTON wrote: »

so the comparision is the cost to you of borrowing for 45 days fee of £75 plus wahtever interest cash withdrawals are charged at against the interest gained in the ISA for 45 days only.

No, £75 is the interest, no fees. So it's £75 compared to what that £3600 would earn me in tax free savings interest for the indefinite future (currently at 3.3% actually, which covers the cost of itself in the first year)

Am I missing something here, have I messed up my calculations? That's two people now doubting me _pale_

CLAPTON

huggierich wrote: »

I could, but then I lose the allowance for this year. Remember I can earn interest, every year that I keep that money in an ISA.

No, £75 is the interest, no fees. So it's £75 compared to what that £3600 would earn me in tax free savings interest for the indefinite future (currently at 3.3% actually, which covers the cost of itself in the first year)

Am I missing something here, have I messed up my calculations? That's two people now doubting me _pale_

Well show your full working and assumptions.


the value of this years ISA is only the benefit of the tax free status .. useful but only worth 20% of the interest

huggierich

CLAPTON wrote: »

Well show your full working and assumptions.

The value of this years ISA is only the benefit of the tax free status .. useful but only worth 20% of the interest

OK, here goes...

Let's assume that for arguments sake I have a fixed rate ISA that's 3% for the next 3 years. Let's also assume that the allowance is going to be fixed at £5,100 annually (I know it's not, but for the purposes of this example).

Starting from 6th April 2011 I save the full allowance of £5,100 every year, and I always deposit it on 6th April, so I always get the most interest for that year. I'm working on the following sums...

Year 1: £5,100 + 3% = £5,253 (£153 interest to date)
Year 2: £5,253 + £5100 + 3% = £10,663 (£463 interest to date)
Year 3: £10,663 + £5100 + 3% = £16,236 (£936 interest to date)

Now, If I have the extra £3,600 the sums work out as follows:
Year 1: £5,100 + £3,600 + 3% = £8,961 (£261 interest to date, and already covered the cash advance fee)
Year 2: £8,961 + £5100 + 3% = £14,482 (£682 interest to date)
Year 3: £14,482 + £5,100 + 3% = £20,170 (£1270 interest to date)

So over the next three years, having that extra £3,600 now is going to make me and extra £334.

Are the basis of these sums wrong?

CLAPTON

well obviously if you actually have 3,600 more in the second option compared to the first then you will earn more interest

but you are NOT comparing like for like
if the 3,600 is simply borrow and then repaid it needs to be reflected in BOTH calculation and not just one

huggierich

I think I know where our wires are getting crossed. I think you're assuming that I'm going to find a savings account with an equally high rate for my excess £3600 (which I receive in 45 days time) after the ISA deadline has passed. So my only benefit is the fact that it's tax free savings.

I'm assuming that as it can't go into an ISA it'll sit in my e-Savings account, where not only will the interest be taxed, but the rate is about 0.8% AER.