Loan with assets behind it

Arbmanjohn

Hi,

I'm in a slightly unusual situation - I want to borrow £15k but I have no other debts and £30k assets in an ISA. The reason I want to borrow the money rather than withdraw my ISA is that I expect to be taxed at the higher rate by the end of this year. Hence I want to keep as much in my tax free wrapper as possible.

Zopa loans seem very cheap at the moment, at 3.7% APR representative, but I have no credit history, so I'm a bit concerned I might not get approved. Will I have a chance to show them my assets before they straight out reject me? I've never applied for a loan before and am a bit wary of doing so and getting rejected.

Thanks in advance.

CHR15

Why would they care about your assets? It isn't as if they would have a claim to them.

With no credit history it is very unlikely you would attract a headline rate.
Balancing the pitiful returns from an ISA it would probably be more cost effective to use the ISA but you would have to look closely at the figures and for how long you expect the money to remain within the ISA.

noh

Withdraw £15k from your ISA.
It wont make any difference to the amount of tax you pay assuming you are intending to spend it and not reinvest it outside a tax free wrapper.
No point in paying to borrow money when you already have it.

PeacefulWaters

1. Zopa is an unsecured lending service. Your savings account is of no relevance to them.

2. Their headline rate of 3.7% is unlikely to be offered to somebody with no credit history.

3. Take the tax benefits of ISA out of the equation for a moment. If the interest rate on the ISA is lower than the interest rate on the loan then simple maths suggests it's bonkers to borrow.

MEM62

Your thinking make no sense.

If you keep the extra £15K in your ISA it will earn perhaps 2% interest - £300. Forgetting the new rules in respect of the tax-free limit on savings interest - tax at the higher rate would be £120.

Interest in the first year of your loan at 3.7% (IF you are offered the best rate) will be over £500.

Withdraw the money from your ISA and repay yourself as if it was a loan.

somethingcorporate

Faulty logic here. As per the rest of the sensible advice, just withdraw from your ISA.

andyfromotley

Hmmnn,

i'm not sure his logic is faulty. Assuming a five year loan term

£15,000 in an ISA at 2.5% (virgin MSE top pick) will be worth £16,847 in five years a gain of £1847

£15,000 loan at 3.7% total repaid £16,428 a cost of £1428.

Therefore taking a loan and keeping the savings will result in a net saving of £419.

Hope i have my maths right. I accept that he may not get 3.7% but thats remains to be seen.

In fact if isa rates improve over 5 years it may well become more profitable.

somethingcorporate

It is faulty logic.

The two options are take the loan at an interest cost of £1,428 and interest gain on the ISA of £1,971 a total gain of £543 over the 5 years.

Or

Borrow from yourself and build your savings up and gain interest over the 5 years. Assuming building it up at 250 a month over 5 years at 2.5% interest gained is about £950.

Hence borrowing from yourself is the superior option by a large margin.

andyfromotley

Yes of course, the repayments make all of the difference. In fact assuming that he can save the repayments he would have paid on the loan, he will gain an extra £1428 plus interest to boot!

Thanks for correcting me.

somethingcorporate

andyfromotley wrote: »

Yes of course, the repayments make all of the difference. In fact assuming that he can save the repayments he would have paid on the loan, he will gain an extra £1428 plus interest to boot!

Thanks for correcting me.

No problem, it took some serious thinking and a couple of re-writes to work it out myself!

Foxy-Stoat_3

Arbmanjohn wrote: »

Will I have a chance to show them my assets before they straight out reject me?

Answer to the question you asked will be NO.

See above posts for answers to questions you should be asking.

If you really want a loan, apply for one, it wont harm your credit history as you say that you have never applied for a loan before, just dont assume you will be offered the best rates.