Earning from a loan

GKOOGK

Hi

My son has a week left to decide if he wants a 25k loan over 5 years..at 2.9% he will pay back £1886 in interest...however if he put it in a high interest account at 3.45% he will earn £4699..is this legal?

Kevin

[Deleted User]

There's just the issue of fraud if he applies for the loan stating one purpose, but knowing it's a lie.

There's also an error in your figures, as you need to account for the dwindling capital as he repays the loan. Is it worth it for the couple of hundred quid he'd earn over 5 years?

MattMattMattUK

GKOOGK said:

Hi

My son has a week left to decide if he wants a 25k loan over 5 years..at 2.9% he will pay back £1886 in interest...however if he put it in a high interest account at 3.45% he will earn £4699..is this legal?

Kevin

It is legal.

However it is a very low yield, the earnings will be taxable if over the threshold, the loan will impact any other borrowing he might wish to do such as a mortgage, and he needs to factor in the impact of inflation in his calculations. From my rough calculations I see it as him making a loss over the five years.