Invest a grand or pay chunk off loan

Guru86
Guru86 Posts: 242 Forumite
in Savings & investments
Good afternoon

I recently just took out a loan with sainsburys I got a poor 6% rate over 3 yrs at £275pm. So in 6 months may look to get a better rate on remaining balance.

Due to getting the car I wanted for a grand less I have left over money. I am looking for people's view on investing this 1000 in something like ratesetter for a year or just pay it off the outstanding balance of loan?

Thanks in advance
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Comments

  • PeacefulWaters
    PeacefulWaters Posts: 8,495 Forumite
    Can you get a guarantee tax free return of in excess of 6% from Ratesetter? It might be possible if you can still get a £100 referral bonus from somebody.

    If not, pay the debt down.
  • economic
    economic Posts: 3,002 Forumite
    pay down the loan. dont even think about it more then that. and dont ever get a stupid loan like that again. only spend stuff with cash never loans.
  • Guru86
    Guru86 Posts: 242 Forumite
    Thanks for that helpful advice but unfortunately when the wife writes off the car nearly killing herself sometimes you need a loan to get a new car
  • atush
    atush Posts: 18,726 Forumite
    Name Dropper First Anniversary First Post
    Pay the loan
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    First Anniversary Name Dropper First Post Photogenic
    Guru86 wrote: »
    Thanks for that helpful advice but unfortunately when the wife writes off the car nearly killing herself sometimes you need a loan to get a new car

    Sounds like the money would have been better spent on bus and train fares if that's the sort of thing she does .
  • jimjames
    jimjames Posts: 17,596 Forumite
    Photogenic Name Dropper First Anniversary First Post
    Guru86 wrote: »
    Thanks for that helpful advice but unfortunately when the wife writes off the car nearly killing herself sometimes you need a loan to get a new car

    You can buy cheaper cars though, not every car requires a loan to buy it. I'd pay of the chunk of loan if you can do so without penalty
    Remember the saying: if it looks too good to be true it almost certainly is.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
    First Anniversary Name Dropper First Post Combo Breaker
    Guru86 wrote: »
    Thanks for that helpful advice but unfortunately when the wife writes off the car nearly killing herself sometimes you need a loan to get a new car

    Use your savings. If you don't have savings accumulate some. You're not a child any more.
    Free the dunston one next time too.
  • Anthorn
    Anthorn Posts: 4,362 Forumite
    First Post First Anniversary Combo Breaker
    edited 21 March 2017 at 1:40AM
    Guru86 wrote: »
    Good afternoon

    I recently just took out a loan with sainsburys I got a poor 6% rate over 3 yrs at £275pm. So in 6 months may look to get a better rate on remaining balance.

    Due to getting the car I wanted for a grand less I have left over money. I am looking for people's view on investing this 1000 in something like ratesetter for a year or just pay it off the outstanding balance of loan?

    Thanks in advance

    Depends on the agreement: It's most likely not simply a case of just part-paying the loan and an early settlement / early repayment quote might be needed. I could be better to use the money to make increased payments which will reduce the term and consequently lower the interest. Again it might be necessary to ask your lender for a quote.

    In addition to checking the agreement also check for charges if applicable.

    What I'm inclined to say is that you haven't explored all your options. Could be that you might get a 0% balance transfer card to clear the loan, save on the interest and be able to keep the money left over. Kinda like having your cake and eating it at least for the term of the balance transfer. Again you'll most likely need a quote from your lender to transfer the balance.

    Lastly, it's MSE's way to clear debt before considering saving and who am I to argue with that?
  • mgarl10024
    mgarl10024 Posts: 643 Forumite
    First Anniversary Combo Breaker
    I had a similar situation recently - I had some money and could overpay the mortgage, but with rates so low, would I be better putting it into investments which could give a better return (but because they are riskier could lead to a broader range of possible outcomes - the guaranteed mortgage saving vs. the possibility of greater or lower returns from investments)?

    In the end, I based my decision on how big a risk this was for me personally and how much of my savings proportionately I was putting into it. For example, if we're talking about £1000, and I have a million in the bank then sure, take the punt, why not? But if it is (hypothetically) my last £1000, then I'm going for the security of the mortgage.

    Meaning this to be helpful - if you are resorting to loans for the car, and this is because you do not have sufficient savings to cope with some of life's challenges, then it strikes me that this money is not something you can afford to take a punt on. I'd play it safe.

    (Obviously, if you are a secret millionaire who enjoys taking out car loans for a hobby, you might think differently. :))
  • Gadfium
    Gadfium Posts: 763 Forumite
    Name Dropper First Post First Anniversary Combo Breaker
    Guru86 wrote: »
    I am looking for people's view on investing this 1000 in something like ratesetter for a year or just pay it off the outstanding balance of loan?

    Are you nuts? What happens if you lose the £1K? If you are having to borrow £9K at 6% then your finances probably can't afford to be gambling in such a way. At best, you might get enough back to cover a year's interest on the £1000, so you break even for the first 12 months.
    mgarl10024 wrote: »
    I had a similar situation recently - I had some money and could overpay the mortgage, but with rates so low, would I be better putting it into investments which could give a better return (but because they are riskier could lead to a broader range of possible outcomes - the guaranteed mortgage saving vs. the possibility of greater or lower returns from investments)?


    In the end, I based my decision on how big a risk this was for me personally and how much of my savings proportionately I was putting into it. For example, if we're talking about £1000, and I have a million in the bank then sure, take the punt, why not? But if it is (hypothetically) my last £1000, then I'm going for the security of the mortgage.

    It's not a similar situation at all. A mortgage is secured on a house. A personal loan is secured on nothing more than the person. What the OP is talking about is borrowing money on a high-rate personal loan and then using that money to invest in a high-risk scheme for 12 months. Borrowing to invest can work, but it needs careful thinking about and a strategy. Its not something to do at the drop of a hat, especially given the high APR and low amounts.
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