Can you use loans for stoozing?

Alex9384

MorningcoffeeIV said:

Every pound that matches one in your savings.  You are then stemming further loss from using your income to reduce the interest, rather than earning any.

Send your income to the highest rate account you can find. Whatever rate you get, it's all positive, rather than loss making, as you have no borrowing costs.

I'm trying to calculate it, can anyone help me?

For example, you can send max £400 to Club Lloyds regular saver, that's £4,800 in 12 months and you'll get back £4,950. That's £150 profit per year. Repeat it 5x and you have £750. You can't have more than one of these accounts, so you can repeat the process every year and earn £750 in total. As your pot of savings keeps growing thanks to your your income, you can add Halifax and First Direct in the next 2-3 years, which have monthly pay-in limit I think £250. I'm a bit lazy calculating all these, but is it at least £1500 earned in 5 years on all those accounts? In my loan scenario, if I repay the loan in 4 years, the amount earned is around £3k. You are losing to inflation in both scenarios, but the one with loan still earns you more. Not to mention that these regular savers will most likely not last for 5 years at current rates. The thing with the loan scenario is that you know exactly what you'll pay and what you'll earn in the next 5 years, no matter what BoE or anyone else is doing. It's a guaranteed fixed interest for 5 years.

MorningcoffeeIV

Alex9384 said:

MorningcoffeeIV said:

Every pound that matches one in your savings.  You are then stemming further loss from using your income to reduce the interest, rather than earning any.

Send your income to the highest rate account you can find. Whatever rate you get, it's all positive, rather than loss making, as you have no borrowing costs.

I'm trying to calculate it, can anyone help me?

For example, you can send max £400 to Club Lloyds regular saver, that's £4,800 in 12 months and you'll get back £4,950. That's £150 profit per year. Repeat it 5x and you have £750. You can't have more than one of these accounts, so you can repeat the process every year and earn £750 in total. As your pot of savings keeps growing thanks to your your income, you can add Halifax and First Direct in the next 2-3 years, which have monthly pay-in limit I think £250. I'm a bit lazy calculating all these, but is it at least £1500 earned in 5 years on all those accounts? In my loan scenario, if I repay the loan in 4 years, the amount earned is around £3k. 

It's not that much.

You need to factor in the lost interest from your monthly income, that has to service the debt and deduct that from your £2.7k 'gain'. So another £750 per year loss based on your figures above - so a deduction of 3k from your 2.7k gain....

Alex9384

MorningcoffeeIV said:

It's not that much.

You need to factor in the lost interest from your monthly income, that has to service the debt and deduct that from your £2.7k 'gain'. So another £750 per year loss based on your figures above - so a deduction of 3k from your 2.7k gain....

The interest is not lost because I'm earning that interest on bank's 20k the whole time.
That's the money which wouldn't otherwise be earning any interest simply because I wouldn't have a 20k lump sum sitting in a 5% savings account. I'm not sure if you realise how big difference this one thing is making.

In both scenarios I give up at least £400 per month.
This £400 will go either to a regular saver, starting earning interest that month, or it will go toward the loan, but I already earned interest on full £20,000 for that month, rather than on just £400. Next month, another £400 could be added to the regular saver, or, I already earned another month of interest on full £20,000 rather than £800, and so on, so I just pay back £400 toward the loan.

So in both scenarios I give up the same amount of money each month, but I either earn interest on 20k or just on £400, with £400 monthly increments. You also don't address the very high likelihood of saving rates fall in the next 5 years.

The bottom line is, in both cases you give up a portion of your money each month. After 5 years you either get back around 3k more (depending how quickly you pay off the loan) or something around 1.5k more in the no-loan scenario. The effect of inflation is present in both cases.

I appreciate you take time to try to find downsides of this strategy that I may have otherwise overlooked. If more people can join, that would be even better. So far, I don't see any major flaw in this plan. Of course, it would only work on condition that I get the loan with representative APR, otherwise no point.

Hypothetically, in the loan scenario, I get monthly wage and can keep cash in something like Chase Saver (easy access), earning 3.3% for a couple weeks and only send it out shortly before the loan payment needs to be paid, earning additional interest over time, then repeat next month, again earning interest on loan repayment for at least 2 weeks or so.

born_again

What would you do if your situation changed & you could not afford to repay the loan out of your disposable income. As many fixed term savings do not allow early withdrawal. 
Or other issues that requires further lending?

https://www.raisin.co.uk/term-deposit/isb007-isbank-uk/?#bank-product-details

Can I withdraw money?

Because this savings account is a fixed term deposit, withdrawals are not permitted before the maturity date, except if an account holder dies, becomes mentally incapacitated or bankrupt, or in any other exceptional circumstances agreed to by Isbank in its absolute discretion. This savings account does NOT operate on the basis that you can end the fixed term of your savings account prematurely and pay a fee to withdraw your funds sooner.Your savings account will not automatically renew at the end of the fixed term for a further fixed term.

Alex9384

born_again said:

What would you do if your situation changed & you could not afford to repay the loan out of your disposable income. As many fixed term savings do not allow early withdrawal. 
Or other issues that requires further lending?

https://www.raisin.co.uk/term-deposit/isb007-isbank-uk/?#bank-product-details

Can I withdraw money?

Because this savings account is a fixed term deposit, withdrawals are not permitted before the maturity date, except if an account holder dies, becomes mentally incapacitated or bankrupt, or in any other exceptional circumstances agreed to by Isbank in its absolute discretion. This savings account does NOT operate on the basis that you can end the fixed term of your savings account prematurely and pay a fee to withdraw your funds sooner.Your savings account will not automatically renew at the end of the fixed term for a further fixed term.

Good question.

I currently have £5000 in Barclays Rainy Day saver for emergencies. Don't want to withdraw that because it's already earning 5.12% interest.

Another £3200 currently in Club Lloyds regular saver, increasing by £400 each month, so if nothing happens in the next few months I'll get back £49xx in October.

In the mid-2024 I'll get back around 8.000€ from my archaic investment account in my home country.

A friend is also paying me back £350 every month for the the next 1+ year. Even if he misses a payment some month, he will pay me back eventually. There are just a couple people I trust with money and he's one of them.

If all the above is still not enough, I'll sell my car and buy Vauxhall Corsa

MrFrugalFever

In principle your plan could work, but will be for little gain considering how much debt you’re looking at taking on.

there are multiple factors to consider though, like you may not got that low APR advertised, you will have a large amount of debt on your file and that could put lenders off when applying in the future and life circumstances can change, you may have a good amount of EF but it doesn’t take much to lose £5k these days.

Alex9384

MrFrugalFever said:

In principle your plan could work, but will be for little gain considering how much debt you’re looking at taking on.

there are multiple factors to consider though, like you may not got that low APR advertised, you will have a large amount of debt on your file and that could put lenders off when applying in the future and life circumstances can change, you may have a good amount of EF but it doesn’t take much to lose £5k these days.

Yea, like I said, it will only make sense if I get the best APR.

EF is more than £5k, it's over 8k right now as I can cancel Lloyds saver if anything happens.

Another cca 7k will be available next summer, and even more than that.

Nebulous2

It may be worth a try. 

I only had one serious go at stoozing, where I borrowed about £35k over a few days. Most of it was on 0% credit cards, but part of it was a loan at under 3%. The main reason for including the loan was that I got £150 for taking it out. 

Most of the money went in Zopa, peer-to-peer lending. I don't remember the interest rate I got, but it was a money-making endeavour. 

I was in a secure place, where I didn't expect to need credit. I did it for my own amusement and it worked. I had missed the heyday of stoozing, and decided I wanted to see what I was missing. 

MalMonroe

Hi, the idea of stoozing is that you borrow money at zero percent interest in the first instance. What you're proposing is a large loan being repaid over 4-5 years, plus interest - and that sounds really scary to me. It's also, as others have pointed out, not really worth all the hassle for such a small gain. 

Here are descriptions of stoozing -

https://www.moneysavingexpert.com/credit-cards/stooze-cash-credit-cards/

https://www.thetimes.co.uk/money-mentor/article/stoozing/

And a reminder of MSE's stance on loans  -  'borrow as little as possible, repay as quickly as possible'.

The general consensus here is that your plan is not a good one. 

Please think very carefully before considering going into debt (and having that hanging around your credit reports) for 4-5 years for very little profit. Many of us here - including me, of course - have been in difficult financial situations and have learned our lessons the hard way. 

I may have done something like you outline before I had to have a DRO but now, afterwards and debt-free, I'd never even consider it. 

That's if, indeed, you can get that loan of £20k in the first place. What will you give as your answer for needing such a loan? You'll probably have to tell a lie - since I wouldn't have thought that 'stoozing' was acceptable to most lenders.

The above is based purely on my own experiences, thoughts and opinions. Obviously, you will do what you feel is best for you but since you've asked our opinions on this forum, that is what you've received. 

For me, what you have described is more like gambling than stoozing. (Again, just my own opinion.)

rumpetroll

Have you taken in to account the tax on this, you say £5404 earned in interest, but I'm assumming you are a higher rate tax payer and also that the interest will only become available to you at the end of the 5 year fix which means you will be taxed 40% of £4904 which leaves you with £3442 ( £4904 x 0.6 + £500 from tax free allowance, assumming you don't earn any other interest that year) you then subtract the interest on the loan of £2225 (using your lower figure) which leaves you with a grand total of £1217. And if you're not a higher rate tax payer then you'd be left with £2298 after tax is paid on it.

Given these returns I personally don't think it's worth it.