Pay off loan or keep the savings?

amandacat

My last debt (bar my mortgage) is a loan, current balance is £10500. I have 3 years left at a payment of just over £300 a month. Interest is about 3%.
I have been saving hard the last couple of years and have just under 12k in savings earning 1.5%.
It makes sense to pay off the loan comparing the interest rates but given the current economic situation, I worry depleting most of my savings means I have no rainy day fund. 
Just after any thoughts or advice please on what you would do? Thanks 

bris

Paying off the loan is better than keeping the savings. You can put the loan repayments back into the savings account with anything else you can add to it and 3 years later it will be better off. 

You can always borrow again if anything crucial pops up

[Deleted User]

Have to agree paying off the loan makes sense, and each month put away the equivilant of the loan payments so you build up your savings again.

macman

You will still have £1500 left in your rainy day fund if you pay off the loan, and then you can top it back up at £300pm.

amandacat

Thanks for your advice. I think I am considering the worst eg I lose my job in the current climate, seems unlikely but anything can happen. It was always comforting to know if I lost my job I could get by for several months if I couldn’t find another job. But I guess with the extra £300 month on top of what I’m already saving it’ll soon build back up again. 
It’s nice to finally be debt free. At my worst I had 2k overdraft, 7k credit card debt plus 2 loans. Most following university and a string of low paid jobs before finally making my way up the career ladder to a reasonable salary.  Took me until my early 40s to be in this position. 

MinuteNoodles

If you've no other savings, in other words you don't have an emergency fund of 3-6 months living expenses I would not repay the loan.

Over the whole 3 years for a £10,000 loan at 3% you're talking at only saving a total of £230 or just over £1.50 a week when you take into account the loss of 1.5% interest on £10,000 savings used over 3 years. Personally in the current climate if the £12k was the only savings I'd had I'd just continue to pay the loan as it is rather than wipe out 5/6th of it, the additional £1.50 a week being a small price to pay to ensure you've got enough of an emergency fund to meet several months with no income.

Socajam

I agree with MinuteNoodles.
At this time, it does make sense to use all your savings to repay the loan - things are too uncertain and until things become clearer I would keep the money.
Maybe you can cut back in other ways and add that to the loan.
Keep your savings - job security or not - COVID have brought too much uncertain in every way.