Will the state of the economy affect Loan APRs for the next 12 months.

PowerHandle

I'm financing a major trip abroad next year with a £15k loan. I don't need to take the loan until August 2023, but I can take it now if I wish to. 

Would I be better to take the £15k at the best APR I can currently find and shove it into something accessible like Premium Bonds or possibly FX, or will waiting the 12 months until I need the money not make any difference despite the predictions of inflation and higher borrowing costs? 

Ebe_Scrooge

If we all had a crystal ball we'd be millionaires by now

We've had historically low interest rates for a long time now - they're on the rise, and my bet would be that they're going to carry on rising, at least in the short term.  Things like this are a gamble, they always are.  That's why the top traders in all the big banks earn massive bonuses if they get it right, and can lose or win billions for the bank overnight.  Who knows?  If it were me, I think I'd be taking the loan now.  Aside from any changes in interest rates, who's to say lenders won't massively restrict lending in the future, meaning you might not even get a loan if you applied for it next year.

You've got to balance that against the fact that any money you get now will lose value in real terms due to inflation.  Is your £15K budget fixed?  Do you even need a loan - can you save up instead?  Is the trip a necessity?  £15K is a hefty chunk of cash to be borrowing for a holiday, for example.

In terms of what to do with the money, should you decide you do want to take it now - premium bonds are "safe" as such, but you're unlikely to make any real gains - unless you're super-lucky.  What do you mean by FX - you mean buying your foreign currency now in the hope that the rate moves in your favour, and you effectively make a profit?  A risky strategy.  Big banks, again, make and lose millions/billions by FX trading - the exchange rates move on a daily (even hourly, I think?) basis.

PowerHandle

Absolutely, of course there is no correct answer unless time travel suddenly becomes a thing so that someone can hop forward  and come back with the interest rates and FX rates for October 2023. Always worth a discussion though. 

The requirement for a loan comes about because I haven't the ability to save that amount of cash in 12 months with other commitments - I am saving, with the intention to take as small a loan as possible, but £15k is a worst case example (pretty much the whole budget except for flights which are already accounted for). It's a lot of money for a holiday, but I don't do yearly holidays (this will be the first in 12 years), and this is to pay for a month of a family of 4 properly enjoying a trip to Australia without penny-pinching and worrying over what we do or where we stay. Repaying the loan isn't an issue, I don't borrow beyond my means and I'm guaranteed a pay rise in September 23 that will cover virtually all of it, but delaying the holiday for 2-3 years to save isn't an option due to the timing of the annual leave for both my wife and I - we've been exceptionally lucky for both our periods of leave to line up next year so we're grabbing the opportunity with both hands.

The idea of putting some into FX (AUD) is that at GBP:AUD is falling and has been for a while, so potentially if I put some into AUD now I'll have more spending money than if I waited. I think at the moment making money isn't really realistic, but limiting losses is worth considering - last year £10k would have gotten me AU$19k, now it's AU$17k. A couple of long range forecasts have Oct 23 exchanging at around AU$15k. Of course, if the pound starts to recover I could see my theoretical AU$17k looking pretty poor if the rate goes over $2...

Ebe_Scrooge

All very fair points, and if you've budgeted for it and can afford it, then go for it - sounds like the holiday of a lifetime.

PowerHandle said:

I'm guaranteed a pay rise in September 23 that will cover virtually all of it

Not wishing to be a doom 'n' gloom merchant, but you can't guarantee you'll have a job in a year's time, let alone a pay rise.  Obviously I genuinely hope I'm wrong - but bitter experience over many years has taught me that there's no such thing as a safe job these days :-( 

PowerHandle

Ebe_Scrooge said:

All very fair points, and if you've budgeted for it and can afford it, then go for it - sounds like the holiday of a lifetime.

PowerHandle said:

I'm guaranteed a pay rise in September 23 that will cover virtually all of it

Not wishing to be a doom 'n' gloom merchant, but you can't guarantee you'll have a job in a year's time, let alone a pay rise.  Obviously I genuinely hope I'm wrong - but bitter experience over many years has taught me that there's no such thing as a safe job these days :-( 

Very true, though it's about as certain as things can be within the bounds of reasonable expectation, and the pay increase is written into my contract. Fortunately I'm work in a role that is very much in demand and I'm employed by a company run at arms length from a devolved Government, so I'm relatively comfortable with the chances of still being there in a year's time to collect the pay increase. That said, I do maintain a back up plan should things all go a bit wrong, I don't like not having a contingency. 

TripleH

It depends on what you do on your trip, but cutting expenditure doesn't have to negatively impact on the trip.

We visited Uluru on a budget expedition, sleeping in a swag bag under the stars was more fun than staying in a swanky hotel. Plus you wouldn't have the delight of an early morning dingo raid on your campsite for shoes