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Taking out loan to Save
OK...bare with me here!
Generally im very risk averse and dont do finance etc however with interest rates at a decent level and personal loans still relatively cheap i had a bit of a mad thought.
Currently i can get a £20000 personal loan at 6.1% APR, this works out to a monthly payment of £386.06 and a total amount payable of £23,163.00 over 60 months
If i put that £20000 into a high interest ISA at around 4.9% i could get a return of £25,540 over the same 5 year period 'netting me' £2,377 over that time.
Now im not saying i will do it, and of course interest rates on savings will likely decrease over that time but am i missing something or are my maths a bit squiffy at why this isnt a good idea on the proviso that i am restrained enough to ensure i dont spend the £20000?
Generally im very risk averse and dont do finance etc however with interest rates at a decent level and personal loans still relatively cheap i had a bit of a mad thought.
Currently i can get a £20000 personal loan at 6.1% APR, this works out to a monthly payment of £386.06 and a total amount payable of £23,163.00 over 60 months
If i put that £20000 into a high interest ISA at around 4.9% i could get a return of £25,540 over the same 5 year period 'netting me' £2,377 over that time.
Now im not saying i will do it, and of course interest rates on savings will likely decrease over that time but am i missing something or are my maths a bit squiffy at why this isnt a good idea on the proviso that i am restrained enough to ensure i dont spend the £20000?
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Comments
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How can the ISA pay more when the interest rate is lower than the loan's interest rate?1
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The_Unready said:How can the ISA pay more when the interest rate is lower than the loan's interest rate?
Used a loan calculator here Personal Loan Calculator (tescobank.com) and it works out at circa £23000 over the same 5 years even though its 6.1% APR meaning the interest paid is circa £3000
Is this just a case of compounding interest on savings being more powerful than simple interest on a loan despite the loan being a higher interest rate?0 -
You're not factoring in the repayments. Effectively, you'll be withdrawing funds from the savings to repay the loan.
Cheaper and easier to just set fire to a pile of bank notes.
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MorningcoffeeIV said:You're not factoring in the repayments. Effectively, you'll be withdrawing funds from the savings to repay the loan.
Cheaper and easier to just set fire to a pile of bank notes.
technically if i started from zero and saved that £386 a month for 5 years id be at £26,200 with the same interest rate so more than the £25,540 by £660 however i wouldnt get as good a rate drip feeding money in so in reality would need to ensure the interest rate stayed about 3.8% to make it work that way.
Anyway, just musing and working out the maths etc.0 -
If you forget about getting the card and just put the monies into savings your return will be 100% profit with no monthly repayments to be made.
That's a no brainer to me.0 -
Adam173 said:
Currently i can get a £20000 personal loan at 6.1% APR, this works out to a monthly payment of £386.06 and a total amount payable of £23,163.00 over 60 months
If i put that £20000 into a high interest ISA at around 4.9% i could get a return of £25,540 over the same 5 year period 'netting me' £2,377 over that time.0 -
Adam173 said:MorningcoffeeIV said:You're not factoring in the repayments. Effectively, you'll be withdrawing funds from the savings to repay the loan.
Cheaper and easier to just set fire to a pile of bank notes.
Just save your own funds and make a profit, rather than turning a loss for no reason.0 -
darkcloudi said:Adam173 said:
Currently i can get a £20000 personal loan at 6.1% APR, this works out to a monthly payment of £386.06 and a total amount payable of £23,163.00 over 60 months
If i put that £20000 into a high interest ISA at around 4.9% i could get a return of £25,540 over the same 5 year period 'netting me' £2,377 over that time.
i explained that above.....im just talking hypothetically of course just comparing the 2 calculators...lots of ifs and buts0 -
If you could afford the repayments, why not open a regular saver like the Nationwide one that is (was?) paying 8% on £200 a month or NatWest doing 6.17% on £150 a month and you'd earn pure profit rather than losing money to interest
Sam Vimes' Boots Theory of Socioeconomic Unfairness:
People are rich because they spend less money. A poor man buys $10 boots that last a season or two before he's walking in wet shoes and has to buy another pair. A rich man buys $50 boots that are made better and give him 10 years of dry feet. The poor man has spent $100 over those 10 years and still has wet feet.
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Nasqueron said:If you could afford the repayments, why not open a regular saver like the Nationwide one that is (was?) paying 8% on £200 a month or NatWest doing 6.17% on £150 a month and you'd earn pure profit rather than losing money to interest0
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