Using a loan to have a saved lump sum
Discussion
okgo said:
Everyone on here makes 10% on their investments PA surely? Ergo we all have both ;-)
Absolute minimum. Year in, year out, guaranteed to outperform any debt cost by at least 10%. They are the only people on the planet that can do it and have found a mystical talisman that permits only them to break all the basic laws of investment and finance. The downside of the talisman is that even though it makes you richer than anyone else on the planet you are only ever allowed to buy a German diesel on finance. To do otherwise would blow your cover and incur the wrath of the gods.
Bailey93 said:
To most i assume this will sound utterly ridiculous...
If I was to take out a 10k loan for instance and put it into my savings account... and instead of putting money away each month I just pay back a portion of said loan, but at the same time knowing I have 10k sat in my account to use when needed (emergencies only etc not frivolous) am I being stupid
Tell me why it's a bad idea but also try and tell me why It could be a good idea.
It would be in a separate account strictly unavailable to just dip into unless seriously needed.
I like the idea of a lump sum being instantly available should a situation arise
The correct answer is to open the separate account and pretend you have taken a loan out.If I was to take out a 10k loan for instance and put it into my savings account... and instead of putting money away each month I just pay back a portion of said loan, but at the same time knowing I have 10k sat in my account to use when needed (emergencies only etc not frivolous) am I being stupid
Tell me why it's a bad idea but also try and tell me why It could be a good idea.
It would be in a separate account strictly unavailable to just dip into unless seriously needed.
I like the idea of a lump sum being instantly available should a situation arise
The set up a standing order for the day you get paid and transfer the theoretical repayment into the new account. In 4 years you will have accrued nearly 10k and paid no interest but actually made a little back.
Bailey93 said:
To most i assume this will sound utterly ridiculous...
If I was to take out a 10k loan for instance and put it into my savings account... and instead of putting money away each month I just pay back a portion of said loan, but at the same time knowing I have 10k sat in my account to use when needed (emergencies only etc not frivolous) am I being stupid
Tell me why it's a bad idea but also try and tell me why It could be a good idea.
It would be in a separate account strictly unavailable to just dip into unless seriously needed.
I like the idea of a lump sum being instantly available should a situation arise
A £10k loan over 5 years would cost you around £180 a month in repayments.If I was to take out a 10k loan for instance and put it into my savings account... and instead of putting money away each month I just pay back a portion of said loan, but at the same time knowing I have 10k sat in my account to use when needed (emergencies only etc not frivolous) am I being stupid
Tell me why it's a bad idea but also try and tell me why It could be a good idea.
It would be in a separate account strictly unavailable to just dip into unless seriously needed.
I like the idea of a lump sum being instantly available should a situation arise
That's a hell of a lot of money just so you can feel good when checking your balance every time you use a cashpoint.
Get a credit card and use that for emergencies.
okgo said:
Its stupid, but no more stupid than the people who have multiple credit cards with various debt on them that is NOT 0% interest, with no lump in the bank (hell, at least you might earn some interest) which statistically is going to be a fair few of the people who have told you you're being an idiot for even thinking about it on this very thread 
Beware statistics though. Seems like most people here have a reasonable degree of financial literacy. I make no claim to be an expert but the level of total incomprehension many people have about even the simple stuff is staggering.If you wrote "using a loan to have emergency cash on hand" I think you would have got a more positive response.
I have a line of credit that I set up a few years ago, costs me nothing unless I tap it.
It means I can take care of almost anything that happens in an instant.
It is always easier to get a loan when you don't need it.
Not so crazy.
You do however have to look at the net monthly cost of this financial arrangement.
ie interest on loan minus int on 10K deposit.
As you pay the 10K loan at some point the interest will become in your favour and you will gradually "own" more of the 10K
I have had quite a few loans I didn't need in the past. I have used them to establish credit.
I have a line of credit that I set up a few years ago, costs me nothing unless I tap it.
It means I can take care of almost anything that happens in an instant.
It is always easier to get a loan when you don't need it.
Not so crazy.
You do however have to look at the net monthly cost of this financial arrangement.
ie interest on loan minus int on 10K deposit.
As you pay the 10K loan at some point the interest will become in your favour and you will gradually "own" more of the 10K
I have had quite a few loans I didn't need in the past. I have used them to establish credit.
DonkeyApple said:
okgo said:
Everyone on here makes 10% on their investments PA surely? Ergo we all have both ;-)
Absolute minimum. Year in, year out, guaranteed to outperform any debt cost by at least 10%. They are the only people on the planet that can do it and have found a mystical talisman that permits only them to break all the basic laws of investment and finance. The downside of the talisman is that even though it makes you richer than anyone else on the planet you are only ever allowed to buy a German diesel on finance. To do otherwise would blow your cover and incur the wrath of the gods.
This has tickled me! My recent favourite was the chap who asked why he would spend £50k (or whatever it was) cash on a car when he could instead take advantage of some unspecified business opportunity and turn it into £150k within a year! Thus it apparently made perfect sense to lease a high-end German diesel. Now if I had access to that sort of magic money-making machine I'd be chucking every penny I had into it, driving a £500 banger and shopping at Poundland so I could retire before I'm 40! DonkeyApple said:
In general terms you are paying a monthly fee so as to feel more financially secure. That on its own has some form of arguable merit but very weak and with more negatives than positives. For starters, we know from statistics, that people who feel more financially secure will increase their spending. So statistically if your plan to make yourself feel more financially secure from having this rented savings account works then you are at extreme risk of increasing your spending habits thus actually making yourself even poorer and achieving the exact opposite of what you are setting out to achieve.
I suspect that the majority of people would have the initial response of telling you that it is a stupid idea and genuinely be shocked that you'd think of such a thing. However, it is exactly what most people are doing in the UK already and many of the people who would instantly think your idea foolish would, when they looked at their own finances, realise that they are already doing exactly this; using debt to purchase goods so as to keep their cash savings at a level that makes them feel secure.
If anything, your concept is more pure and honest than how most go about it.
It doesn't mean that it has any more true merit over how most people do it. The only sane way to achieve a cash cushion is to temporarily cut your outgoings and divert those savings into your cash account. The additional upside is that you would then be at much less risk of elevated spending as most people who start such a process tend to find that they don't stop when they hit their target but discover that they have converted themselves from being net spenders to net savers and in reality have noticed no detriment to their quality of life from spending less.
All of the above. But most importantly, the feeling of 'financial security' actually comes from having put the money into the savings account yourself by not spending it. Having someone else put it there in the form of a loan means you've actually taken on debt, leaving you feeling less secure.I suspect that the majority of people would have the initial response of telling you that it is a stupid idea and genuinely be shocked that you'd think of such a thing. However, it is exactly what most people are doing in the UK already and many of the people who would instantly think your idea foolish would, when they looked at their own finances, realise that they are already doing exactly this; using debt to purchase goods so as to keep their cash savings at a level that makes them feel secure.
If anything, your concept is more pure and honest than how most go about it.
It doesn't mean that it has any more true merit over how most people do it. The only sane way to achieve a cash cushion is to temporarily cut your outgoings and divert those savings into your cash account. The additional upside is that you would then be at much less risk of elevated spending as most people who start such a process tend to find that they don't stop when they hit their target but discover that they have converted themselves from being net spenders to net savers and in reality have noticed no detriment to their quality of life from spending less.
Pretend you've taken out that £10k loan. You now have to make a repayment of £180 a month to the lender. Put £180 into a savings account and DO NOT TOUCH IT as it's not yours any more, you just gave it back to a lender. Every month, you'll feel £180 more secure than you did last month
gavsdavs said:
Pretend you've taken out that £10k loan. You now have to make a repayment of £180 a month to the lender. Put £180 into a savings account and DO NOT TOUCH IT as it's not yours any more, you just gave it back to a lender. Every month, you'll feel £180 more secure than you did last month
^^ Precisely this.Zoon said:
The correct answer is to open the separate account and pretend you have taken a loan out.
The set up a standing order for the day you get paid and transfer the theoretical repayment into the new account. In 4 years you will have accrued nearly 10k and paid no interest but actually made a little back.
This is true. The set up a standing order for the day you get paid and transfer the theoretical repayment into the new account. In 4 years you will have accrued nearly 10k and paid no interest but actually made a little back.
Apart from anything else, if you need more than you have accrued in the future, it will probably be easier to borrow the remainder as and when you need it, at a lower cost, if you have savings, and regular payments demonstrating it.
The only possible exception OP is if you are certain that you can consistently make a higher return after tax than the money will cost you. In which case, go for it.
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