Use LISA to pay off DEBT?

JJM236

Hi guys, I have a £5500 loan at (4.9%) and £6500 in a LISA (earning 1%). I believe that due to COVID the penalty for withdrawing a LISA has been lowered to 20% rather than 25%. 
If I withdraw, does this mean I just lose the bonus and none of my own money?
If so, is it advisable to withdraw the LISA and pay the loan off?

Thanks in advance. 

J

sharpe106

That explains the cost of withdrawing from LISA
https://www.skipton.co.uk/savings/isas/lifetime-isa/faqs#:~:text=Withdrawal%20charge%3F,but%20no%20bonus%20is%20paid.
If it worth it or not depends, how long will the loan take you to pay off?

Fatsdom

Why not ask Bart or Homer. lol. 

ryanm8655

I would say no...unless you are insolvent...

JJM236

Thank you.

JJM236

sharpe106 said:

That explains the cost of withdrawing from LISA
https://www.skipton.co.uk/savings/isas/lifetime-isa/faqs#:~:text=Withdrawal%20charge%3F,but%20no%20bonus%20is%20paid.
If it worth it or not depends, how long will the loan take you to pay off?

Thanks Sharpe,
The loan was originally 14500 over 3 years, paying 433 a month at an interest rate of 4.9%.

During lockdown I have been able to bring that amount down to £5941 and I am putting everything thats left in my current account each month (average £1500) to pay it off. This will change when I get back to work though.

Is your advice to still keep the LISA and continue with the current plan?

Thanks,

Joshua

sharpe106

If you pay nothing off for your loan each month the interest will be just under £25. So not a big amount. Obviously as you are tackling it each month the interest would get less. Your managing to pay £1500 a month now how much will that reduce to after you return to work? At the current rate you will have it paid of in about 4 months. So I would be leaving it as it is. 

ryanm8655

Yes - definitely keep the LISA.

JJM236

Less, will have to pay for commuting etc.

Really appreciate all of your help, the though of withdrawing the LISA and just being debt free was tempting.

sharpe106

Appealing but not always the best option. Your making good progress so all you need to do is carry it on. 

Jack_Cork

Fatsdom said:

Why not ask Bart or Homer. lol. 

Great answer, that really helps the OP, brilliant advice