Pay off loan or save in an ISA

timetosortitout_2

Hello,

As the thread title suggests, i am trying to determine which option would be better in order to clear my debts.

I have a £8000 loan due to expire in Sep 2015. I have an additional £380 a month so i want to know whether i put this into an Isa and get interest or pay the loan early and pay less interest on the loan. My ISA is 3% and my loan is 7.5%. Either way i would look to settle the loan in Sep 2013, either by using a lump sum saved from the ISA or from an increase in my monthly payments from now until then.

Thanks you in advance for any advice.

CLAPTON

well why get 3% interest from a ISA when you can save 7.5% by reducing your loan
assuming no fees etc then pay off the loan early

lolavix

As above, the loan is a higher rate so wouldn't you rather pay off as much of that as you can?

timetosortitout_2

Thanks.

I was just unsure as i was thinking i could save up a years worth in an ISA, thus getting 3% and then when i settle the loan in 12 months time i assumed i would get a revised quote and so less interest would be paid.

lolavix

Check just in case as you may have a loan with hefty early repayment charges - but many are quite flexible now

Saints2011

The only question I would ask is that do you have a emergency savings pot of say 3-6months expenses ? If not you may have to lend money at a later date again.

If you have it makes financial sense to throw the cash at the loan