Loan logic?

Immaculata

Hello, I hope someone here can clarify a credit question for me. I'm being made redundant soon and going on social welfare while I look for a new job. I own my house. I don't have any savings. I was going to hire a builder to divide up my house and convert the garage, so my widowed mother and I can live in half of the house, and we can (hopefully) rent the other half out as a separate flat for some income towards my mother's needs and so on. I was going to use the redundancy payment and an interest-free loan from a kind friend to pay for the works.

But one of my cousins says I would be wiser to put the redundancy payment in a bank or credit union, get a loan of the same amount, and pay it back. She says that then I will have the works done, and still have the payment in savings for a rainy day. Is this the wisest thing to do?

miezekatze

You said though that you would use the redundancy payment plus a loan to pay for the work. If you were to put the money into the credit union, you would probably only be able to get a loan for the amount you put in, and obviously your redundancy payment would still be in the credit union. Would that be enough to cover the costs?

Ivan.Drago

From a pure credit perspective, no it does not make sense as the loan from the credit union will have a cost through the interest you have to pay. However your personal circumstances may dictate that this "rainy day" fund may be useful to you in the future. It's up to you to judge how big this fund will need to be - maybe judge how much money you think you need to put aside in case of an emergency in the future and go from there.