Keep savings and take a loan out?

Seasiatravels

My question here is... My partner and I are due to take career breaks and travel for 3 months this winter. We are close our savings goal of £10000. We are in our twenties and are doing things in a modern order - university, travel, save for a house, save for wedding.

Our question is... Do we keep the saved cash for when we come back from travels and take a loan out for this now (I have found £10000 at 4.5% APR over 4 years). I know I will be less well off due to paying interest on the loan, but does it hold better for me that I will have cash saved (for adding to also) to go towards a house deposit? Help!

Tixy

Will you be paying back the loan in full before considering a mortgage?

If no then the loan will be taken in to account when you apply for a mortgage and affect how much a lender would be willing to lend to you, so you are unlikely to end up in a better position.

If yes then it would be cheaper to use your savings and then resave the existing £10k and more from your earnings after you return from your trip.

I would use some of your savings to fund the trip.

Seasiatravels

We would probably need the 4 years to save on top of the £10k for a deposit; would pay off the loan before applying for the mortgage

hazyjo

So what you're basically asking is something like this...

"I have money in the bank that will pay for our travels. But I'm thinking of borrowing that same amount of money over four years and paying interest on it.

Four years later, I should have cleared the loan and have enough in the bank for a deposit."

Why not just use the money saved - so no interest - then come home and save again? Surely that's exactly the same thing as what you're proposing, apart from paying interest on a loan (effectively borrowing money when you already have it, and possibly saving less as you'll have a loan/interest to pay!).

Am I missing something?

Will you have jobs to come back to?

Surely if you're only away for 3 months you won't spend a fortune? Are you backpacking or doing it in luxury?! What about a group trip? Friends of mine (in their 40s) took a year out and travelled all over the world with an organised group.

Jx

egoode

I personally hate debt and when I saved to travel I first saved some money that would be for when I returned from my travels and then saved for the travel money. Can you save some more before you travel so you have some savings when you return? You could do this by not going out, not buying new clothes unless something desperately needs replacing etc. It would only be for a couple of months but could be a better option than a loan. When I was saving I used to think do I really need this when it could mean another day added to my trip.

Also think about ways to save some money while travelling. I used to fill up on breakfast at the hostel and then only have one other meal for the day. Only paid for attractions I was really interested in and not just because everyone else was going etc.

Kayalana99

I'd use the 10,000 but set up a direct debit for what you would pay on the loan (if not a little less) into a bank account for x years until the house deposit is back.

If you can have the self restraint not to dip in it...then save yourself the interest.

Peter333

Agee with hazyjo's post. ^^^