When debt is cheap is it a no brainer just to take some?

The OP doesn't have the cash now. It is a case of save and wait or borrow and buy now. If he wants the item now, then a loan is the solution. If he can wait then he can save and not need a loan.
 
It makes sense if you already have other loans at a higher rate you could pay off.

To some extent it might make sense if you are doing it just to gain a credit history, and your lack of credit history is stopping you getting a mortgage, but then a getting a credit card and pay off the full balance every month instead of using your debit card to buy stuff should achieve the same effect, and unlike the loan it won't cost you £300 a year.

If you need to buy stuff, e.g. you've just moved into your first rental and have no furniture or car, then it makes sense as it'd be cheaper than putting all the kit you need it on a credit card that you can't afford to pay off in one hit.

Just taking a 3% loan to put in a bank and get 1.5% interest with the potential of being taxed if you get too much interest doesn't make sense. Unless its a fixed rate and you're 100% sure that the BOE is going to put up the interest rates significantly, which although they keep threatening to do, is unlikely due to the impact it will have on all the people with cheap mortgages.

I have in the past chosen to put money in an ISA rather than paying off an interest only mortgage, but only because the ISA had a higher rate and both the mortgage and ISA were fixed.
 
Scam said:
Utter stupidity. Why the heck don't we teach kids common sense finance? :confused:
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It might not be stupidity. What if the person thinks he might need a loan within say 3 years, but in 3 years time the interest rates have risen and the cost is greater at that point than it is now. He might have been better off taking the low cost debt now and holding it until he needs it?
 
danlightbulb said:
in terms of protecting yourself against inflationary pressure i would agree, but in terms of simple financial security (i.e a cash buffer) then cash in the bank (assume earning at least a bit of interest) does have intrinsic value?

It has intrinsic value to get the buffer sooner rather than later, doesnt it?
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Cash does no have intrinsic value.Thats the problem.
In your scenario you are taking out a loan for it to sit in your bank, meanwhile your intrinsic value in the eyes of investors is going down and you are not using the loan to gain any assets with intrinsic value.
Your wasting of time in an attempt to build 'emotional security' when in reality you have none.
 
I'm looking at buying a new car and the numbers look like it would ultimately be cheaper to use finance rather than pay! We had this before buying furniture. The zero % interest is a con but they just won't discount the price if you want to pay.
Andi.
 
By all means take out a 10K loan if you need the money now for something. There is little point in taking it out just to sit in your bank account unless the savings interest rate was higher than the loan interest rate. It is also worth bearing in mind that only a small percentage of applications get the smallest headline APR.
 
LeeUK said:
By all means take out a 10K loan if you need the money now for something. There is little point in taking it out just to sit in your bank account unless the savings interest rate was higher than the loan interest rate. It is also worth bearing in mind that only a small percentage of applications get the smallest headline APR.
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Kind of not the question though. This scenario is about not needing the money right now for anything, but taking the capital injection now because it is cheap to do so. It might not be cheap in the future.

To address points being made by others, yes it would make logical sense if the money borrowed could be put to work so that it was cost positive ie generated an ROI. However does the absense of that mean it is entirely a dumb idea if the cost is marginal or neutral, in order to get immediate access to a buffer fund?
 
Yeah.
If you need something take the loan.
But no point in just having cash in bank from the loan unless you can guarantee an rate high enough to make it worth it.
If the loan had 1pc interest and isa had 5 then yeah probably worth it!

LISA is an example as said early In the thread
 
Can i safely assume that no one responding to this thread has any cash just sitting in the bank 'doing nothing'? You all have every penny of your cash working for you in some way generating an ROI?
 
I took out £10k on a money transfer credit card at 0% for 36 months. No transfer fee either. IIRC it was a special offer with Virgin Money. I also have my mortgage with Virgin Money and at the time of remortgage they did not like the fact I had £10k sat around earning interest, so I paid it all back. No impact to my excellent credit score.
 
bloodiedathame said:
I took out £10k on a money transfer credit card at 0% for 36 months. No transfer fee either. IIRC it was a special offer with Virgin Money. I also have my mortgage with Virgin Money and at the time of remortgage they did not like the fact I had £10k sat around earning interest, so I paid it all back. No impact to my excellent credit score.
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Seems like an unreasonable request to me. What difference does it make to them if you can afford the repayments in either case. All you are doing is making free money work for you, which makes you overall a lower mortgage risk than a higher one.
 
danlightbulb said:
Seems like an unreasonable request to me. What difference does it make to them if you can afford the repayments in either case. All you are doing is making free money work for you, which makes you overall a lower mortgage risk than a higher one.
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They messed me around big time with my remortgage, didn't offer me the full amount, despite the fact we were about to paying less a month than we had already been paying with Halifax for two years. Don't think I'd get a mortgage with them again Out of all our finances they also flagged up a £3 increase in my broadband that happened at the end of our contract. Three whole pounds.
 
danlightbulb said:
It might not be stupidity. What if the person thinks he might need a loan within say 3 years, but in 3 years time the interest rates have risen and the cost is greater at that point than it is now. He might have been better off taking the low cost debt now and holding it until he needs it?
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I think the scenario you just described would be far better served by saving for those 3 years. Saving £300/month would get £10k in under 3 years. Taking out a loan "just in case" it almost as stupid as the original suggestion.

danlightbulb said:
Can i safely assume that no one responding to this thread has any cash just sitting in the bank 'doing nothing'? You all have every penny of your cash working for you in some way generating an ROI?
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Pretty much. Once I've paid all my bills, worked out any outstanding direct debits (gym membership etc.) for the month, anything else I need to pay.. most of my leftovers go straight into my ISA. I leave £250 or so in case I need cash (doubtful, I pay everything on credit card anyway) but then that goes into next months savings anyway. It makes me sad that I seem unsual for saving... People living hand to mouth (or whatever the expression is) wonder why they become undone by surprises down the line...
 
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