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Taking a personal loan to boost private pension

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  • 01-09-2017 11:21am
    #1
    BrokenArrows
    Registered Users Posts: 7,500 ✭✭✭


    Im constantly getting letters from my bank and other sources offering personal loans.

    I got an email today from a finance company that ive used before offering up to 25k @ 3.3% APR. Of course im unlikely to get that rate but even if it went to 6.6% or 9% it might still make sense in the long term.

    Ive been getting over 20% returns on my pension fund choices over the past few years but the fund value is still quite low as i started late.

    If i took out a loan of 25k and deposited it into my pension fund i could get an uplift of 40% from tax relief (im in the uk) which means i would deposit 35k into my pension.

    Assuming a 35k deposit and a very low return of 6% per year on my funds, that would yield a return of 47,209. If i maintained my 20%+ returns (unlikely i know) it would return 94,358.

    The repayment over 5 years @ 3.3% sees me repaying 27,121.80

    At a 6% return that extra 35k deposit would see an extra 200k in my pension fund over 30 years. At 10% it would see nearly 700k.

    Even if i was to break even over the 5 years, loan repayments vs pension return, it is still going to give me much more returns over the remaining years of my pension.

    Seems like good value to me and i can afford the repayments. Anything im missing.


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    #2
    Nody
    Moderators, Category Moderators, Arts Moderators, Business & Finance Moderators, Entertainment Moderators, Society & Culture Moderators Posts: 18,260 CMod ✭✭✭✭Nody


    You got 20% in a time when the markets were going up and you were hard pushed to pick wrong; I've averaged over 20% as well but that's not what I expect to get. Inflation +5% is what I personally calculate on as long term basis as being more likely rate.

    Anyway; back to your question check that the interest rate is really locked in for the full duration and have back up savings to cover at least part of the loan in case of sickness, unemployment etc.


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