Loans better than overtime?

System

Yep, a business loan much like a buy toilet loan is borrowing to make a greater profit.

And as far as spending goes, if you have an upfront cost it could be cheaper to borrow as you'd be repaying using money that is less taxed than your overtime, making use of the PAYE and NI threshold and tax credits, therefore the total number of hours you need to work to pay it could be less. Not that I have an unexpected expense that I'm not prepared for but you never know

Herzlos

Ah, speculating is better than overtime, if you can get the required returns in a suitable period and don't lose the lot.

That's why people won't give you loans to gamble or invest.

System

Well if the property market crashed and the investment did too, the consolation would be that I'd finally be able to buy something decent, its almost actually gamble if you -don't- get into property, you're more guaranteed to lose to house price inflation

JimmyTheWig

MatthewAinsworth wrote: »

And as far as spending goes, if you have an upfront cost it could be cheaper to borrow as you'd be repaying using money that is less taxed than your overtime, making use of the PAYE and NI threshold and tax credits, therefore the total number of hours you need to work to pay it could be less.

I've got you! I understand what you're trying to say.

Right, lets say the OP works 28 hours a week, earning £7 an hour.
They earn £10,192 a year.
They pay £38 a year income tax.
They have a Tax Credit withdrawal of £1,547.
Net income from working is £8,607.
That's £5.91 an hour.

If they work an hour overtime they would earn an extra £7.
They would pay an extra £1.40 income tax.
They would lose an extra £2.87 tax credits.
So that extra hour brings them £2.73.

Ok, so lets say out of the blue they need £273 that they don't have.
They could work 100 hours overtime to get it.

Or they could borrow it and pay back an extra 10%.
That would mean paying back £300 from their £5.91 an hour pay, which means working 51 hours.

So by working overtime that £273 costs them 100 hours of work.
But by borrowing it it costs them 51 hours of work.

System

Thank you Jimmy

Herzlos

But you'd lose the money you'd otherwise not have to repay? In that you'd lose 51 hours worth of pay over however long it took to pay off. It's not as if you get paid twice for it.

Of course, if you can afford to do that (and do without later) that will be the most hours efficient way of affording something.

dealer_wins

Matthew we dont agree with you, but the lending institutions will love you!

JimmyTheWig

Herzlos wrote: »

Of course, if you can afford to do that (and do without later)

Exactly. That's where the plan would fall down for most people. If you can afford to pay it back, then with hindsight you could have afforded to save up for it.

that will be the most hours efficient way of affording something.

Still not as efficient as saving up for it. That would be 46 hours.

glentoran99

JimmyTheWig wrote: »

I've got you! I understand what you're trying to say.

Right, lets say the OP works 28 hours a week, earning £7 an hour.
They earn £10,192 a year.
They pay £38 a year income tax.
They have a Tax Credit withdrawal of £1,547.
Net income from working is £8,607.
That's £5.91 an hour.

If they work an hour overtime they would earn an extra £7.
They would pay an extra £1.40 income tax.
They would lose an extra £2.87 tax credits.
So that extra hour brings them £2.73.

Ok, so lets say out of the blue they need £273 that they don't have.
They could work 100 hours overtime to get it.

Or they could borrow it and pay back an extra 10%.
That would mean paying back £300 from their £5.91 an hour pay, which means working 51 hours.

So by working overtime that £273 costs them 100 hours of work.
But by borrowing it it costs them 51 hours of work.

but if they cant afford the £273 now then how are they going to pay it back as presumably they need this money over and above normal outgoings?

JimmyTheWig

glentoran99 wrote: »

but if they cant afford the £273 now then how are they going to pay it back as presumably they need this money over and above normal outgoings?

As I say in my follow-up post (#49), that's the whole problem for most people.

Though I guess if you're the sort of person who spends what you have because it's there, there may be room to pay this off without too much hardship.
I mean, as much as we see on these boards people struggling to pay off debt, many people do take out loans and pay them back with little difficulty.