Take a loan at 2.8% and use it to invest

CarMad

I have been approved for a home improvement loan at 2.8% for 4 years which I plan to use in the next 12-24 months, drive way, internal re-decoration etc. In the mean time is it worth taking this and use it to invest in the stock market. I keep getting emails from reputable companies with headings such as "waiting for the right time to invest" and "Impact of missing best days in the stock market".

Or is it best to leave it as cash until I need to use it ?

DiamondLil

Do you have the means to repay the loan and carry out the home improvements if the market plunges between investing and needing the money ?

[Deleted User]

Save up your own money and once you have a sum that you're happy to gamble, invest it.

You'll want to be looking at the long term for investments, not a year or two.

Albermarle

 I keep getting emails from reputable companies with headings such as "waiting for the right time to invest" and "Impact of missing best days in the stock market".

However if you read the details of these , you will see  prominently displayed statements such as ' Investments can go down as well as up ' or ' Your Capital is at risk' 

A similar post has been discussed on the Savings and Investments forum ( which would have been a better place for your question) 

Most sensible use of a loan to invest — MoneySavingExpert Forum

Thrugelmir

Why have you borrowed money if you've no plans to use it? 

DrEskimo

Thrugelmir said:

Why have you borrowed money if you've no plans to use it? 

This ^

There is a Chase savings account that will give you 1.5% interest at the moment. Withdraw from the loan and put the monthly amount into that instead, ready to use in 4yrs time.

With the loan costing you 2.8% in interest, you are needing an investment to return over 4.3% on average to beat that savings account with no cost of a loan to worry about. There are no guarantees you will average that return over the next 4-years after platform fees. It's not a sufficient time period to see out short term cycles, and you could end up with substantially less when you need it.

MalMonroe

You say, "I keep getting emails from reputable companies with headings such as "waiting for the right time to invest" and "Impact of missing best days in the stock market"."

I say, delete those emails, mark them as spam and block the senders. Their sole purpose is to encourage people to use money they don't have to buy into things they don't need or want. It's called persuasive psychology.

This very forum advises, under the heading of 'loans' - "Remember MSE's stance on loans: 'borrow as little as possible, repay as quickly as possible'."

Having been in great financial difficulty myself in the past - now a lot better, thanks to Stepchange debt help agency - I really resent paying ANY interest on anything at all, no matter how small the rate may be.

If you have borrowed money to use on home improvements, then why not do that? If you can pay it off early without penalty, do that too. 

Then you should be in a good position to start saving. Just my opinion but borrowing money when you don't need to is just sheer folly. And it's making lenders richer by the minute. 

marlot

CarMad said:

I have been approved for a home improvement loan at 2.8% for 4 years which I plan to use in the next 12-24 months, drive way, internal re-decoration etc. In the mean time is it worth taking this and use it to invest in the stock market. I keep getting emails from reputable companies with headings such as "waiting for the right time to invest" and "Impact of missing best days in the stock market".

Or is it best to leave it as cash until I need to use it ?

If you can point me to an investment which is guaranteed to do better than 2.8% a year, I'd bite your hand off.

[Deleted User]

marlot said:

CarMad said:

I have been approved for a home improvement loan at 2.8% for 4 years which I plan to use in the next 12-24 months, drive way, internal re-decoration etc. In the mean time is it worth taking this and use it to invest in the stock market. I keep getting emails from reputable companies with headings such as "waiting for the right time to invest" and "Impact of missing best days in the stock market".

Or is it best to leave it as cash until I need to use it ?

If you can point me to an investment which is guaranteed to do better than 2.8% a year, I'd bite your hand off.

Exactly as marlot said a S&S ISA will pretty much guarantee growth but crucially only over a longer term - if you'd put in the loan 2 weeks ago when the markets tanked due to Ukraine, you'd be up now, but if you'd put it in the day before the invasion, you'd probably be down.

Any sort of S&S investment is 5+ years really for a reliable chance to grow. If you spread the loan around, there are current accounts and similar regular savers e.g. Natwest do 3% on the first £1000 (albeit you have to do £150 a month maximum) for example, but it's a lot of effort for very little gain

CarMad

Great responses from everyone. There is a little bit of FOMO. Take a little risk or just play it safe. Will loan rates stay below 3% for long, not so sure.

DrEskimo

CarMad said:

Great responses from everyone. There is a little bit of FOMO. Take a little risk or just play it safe. Will loan rates stay below 3% for long, not so sure.

A loan doesn't give you money.

It just borrows it off your future self at a cost. There is nothing to miss out on...