Advertisement
If you have a new account but are having problems posting or verifying your account, please email us on hello@boards.ie for help. Thanks :)
Hello all! Please ensure that you are posting a new thread or question in the appropriate forum. The Feedback forum is overwhelmed with questions that are having to be moved elsewhere. If you need help to verify your account contact hello@boards.ie

Paying off a loan with savings? - Is it a crazy idea?

Options
  • 09-10-2013 11:42am
    #1
    another question
    Closed Accounts Posts: 1,386 ✭✭✭


    I have savings with CU but I also have a Loan with CU. My savings are greater than my loan at the moment by about €350.

    Like most people, I started out with a relatively small loan but things kept coming up one after another and I have had to top up the loan 3 times since I took it out.

    Thankfully I haven't had any need to top it up in the last 3 months and I have made 3 monthly payments on it since (more than the repayment) to try and bring it down.

    It's not exactly causing me sleepless nights but I wish it wasn't there at the same time.

    I am toying with the idea of using my savings to clear the loan and just go back to savings properly each week and hopefully get it back up again.

    The interest rate is about 6% so it's not costing me a fortune to have it but I'm just fed up thinking about it.


    Will the CU even let me do this or will they talk me out of it?


Comments

  • Options
    #2
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    unless you can get better than a 6% return on your money absolutely makes sense to clear your loan with savings.

    Im not sure if the CU allow you to do this tbh, but if they do you should.


  • Options
    #3
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    D3PO wrote: »
    unless you can get better than a 6% return on your money absolutely makes sense to clear your loan with savings.

    Im not sure if the CU allow you to do this tbh, but if they do you should.


    I think I should. I just read on another thread though, that when someone cleared a loan with their savings before the CU didn't let them take out another small loan in the future without a guarantor, I wouldn't want this to happen to me. It's not that I'm not able to pay the loan in the long-term, I would just prefer to not have it at all.

    I can only withdraw €350 of my savings though so I would have to tell them what I was doing (I was hoping I would just get away with withdrawing my savings and making a loan payment a few days later but I forgot about the secured shares).

    They are bound to ask me why I want to do this and try and reduce payments for me or something - and I haven't really got a reason other than to clear my head!


  • Options
    #4
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    I suppose I am just kind of annoyed with myself that I let it build up. I have had loans in the past but they had purpose if you know what I mean. Like car, Christmas etc...

    This one was started as €700 for a friend that was in dire straits and at the time I said to myself sure €100 per month for 7 months is nothing, if I just cut back here and there I'll hardly notice it but then 3 times after that things happened on my side that I just couldn't afford and they needed paying immediately. I just topped it up and all of a sudden it was €2000. I have it down a good bit but it feels like I'm paying off a loan for a load of different things that I should have been able to pay myself.

    I'm usually so careful with money but now I feel pissed off that I let myself get to this stage. I know it's small in comparison to other peoples financial problems but the point is the original €700 should have been long paid off at this stage.


  • Options
    #5
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    another question wrote: »
    I think I should. I just read on another thread though, that when someone cleared a loan with their savings before the CU didn't let them take out another small loan in the future without a guarantor, I wouldn't want this to happen to me.

    There is no way in the world this is true. Firstly it makes no financial sense for them to turn down somebody with a good credit record who has a history of repaying their loans to them.

    Secondly if a CU's were using paying off a loan early as a stick to beat you with they would be under investigation by the financial ombudsman.


  • Options
    #6
    MissFlitworth
    Closed Accounts Posts: 8,057 ✭✭✭MissFlitworth


    My partner cleared off a credit union loan with a chunk of his savings a while ago, no questions asked. Same as you he felt there was no sense in paying off a loan every week when he had the money there to clear it. There were no questions asked or hassle with the credit union staff when he wanted to do it


  • Advertisement
  • Options
    #7
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    MissFlitworth wrote: »
    My partner cleared off a credit union loan with a chunk of his savings a while ago, no questions asked. Same as you he felt there was no sense in paying off a loan every week when he had the money there to clear it. There were no questions asked or hassle with the credit union staff when he wanted to do it

    That's really good to know. I fully intend to go in and talk to them, I just don't want to make a balls of it when I go in and let them talk me into not doing it etc and then I'll be frustrated.

    So I just want to be clear what I'm asking for and see if it's possible first.

    If you don't mind me asking - did your partner use all of his savings to clear off the loan or has he much left.


  • Options
    #8
    MissFlitworth
    Closed Accounts Posts: 8,057 ✭✭✭MissFlitworth


    another question wrote: »
    If you don't mind me asking - did your partner use all of his savings to clear off the loan or has he much left.

    Not all of his savings no but he didn't have a whole heap left afterwards in his credit union afterwards, would only have been a couple of hundred euros.


  • Options
    #9
    theblueirish
    Registered Users Posts: 488 ✭✭theblueirish


    just bear in mind that as well as paying interest on your loan you are also receiving interest on your savings.
    I think people are more inclined to repay alone than save.

    i could be wrong on this but here is my thinking.
    If your savings balance is €1000 and your loan balance the same.
    loan repayment over a year on €1000 is €1060
    interest on loan savings 3% (guess) €1000+30 in interest = €1030

    so a net saving of €30 if you pay off your loan, but would you save every week as opposed to paying of your loan every week?

    Also figure if you have no savings you have nothing to borrow on. even if you still have a loan you can always get a top up based on savings in an emergency.

    Just my 2cents.


  • Options
    #10
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    theblueirish wrote: »
    just bear in mind that as well as paying interest on your loan you are also receiving interest on your savings.
    I think people are more inclined to repay alone than save.

    i could be wrong on this but here is my thinking.
    If your savings balance is €1000 and your loan balance the same.
    loan repayment over a year on €1000 is €1060
    interest on loan savings 3% (guess) €1000+30 in interest = €1030

    so a net saving of €30 if you pay off your loan, but would you save every week as opposed to paying of your loan every week?

    Also figure if you have no savings you have nothing to borrow on. even if you still have a loan you can always get a top up based on savings in an emergency.

    Just my 2cents.

    Thanks for taking the time to reply, good answer. Tbh interest on CU savings never seems to pay me anyway. It's always a tiny amount and the with fees and deductions I do be lucky to get about €2/€3 at the year end.

    If I pay the loan off I'm full with my savings I'll still have about €350 savings left. I can go back to saving €35 per week then with no loan to pay and I intend to add €200 to it at the end of the month also because I am getting a service payment this month (once a year). So I think by the time I'll be looking to borrow off them again(sticking to a manageable small amount) I will have about €1000 in there I hope.

    The way I'm looking at it at the moment is - is it 1) I know I'll be depressed looking at a low savings balance but I'll be happy to have no loan and 2) at the moment even though my share balance looks healthy I kinda don't look at it as my own anyway because it's secured.


  • Options
    #11
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    MissFlitworth wrote: »
    Not all of his savings no but he didn't have a whole heap left afterwards in his credit union afterwards, would only have been a couple of hundred euros.

    I'll be in same position as him then. Is he happy with his decision?


  • Advertisement
  • Options
    #12
    MissFlitworth
    Closed Accounts Posts: 8,057 ✭✭✭MissFlitworth


    another question wrote: »
    I'll be in same position as him then. Is he happy with his decision?

    He is, he started funnelling the amount he was paying off the loan back into his savings so they're building up again but he doesn't always *have* to have enough for a repayment on hand every week


  • Options
    #13
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    MissFlitworth wrote: »
    He is, he started funnelling the amount he was paying off the loan back into his savings so they're building up again but he doesn't always *have* to have enough for a repayment on hand every week


    They would be my intentions also. It's definitely a mentality thing with me as opposed to being able/unable to pay.

    However small the amount of savings, I think I would prefer to look at them and say yes they are mine than looking at loan that seem to be taking ages to clear.


  • Options
    #14
    Anyone
    Registered Users Posts: 3,376 ✭✭✭Anyone


    You can do this no problem. However, depending on your age(if you are over 50 for example) I'd ask about the insurance your credit union has for you,as its based on your savings and you may not be able to get this back.


  • Options
    #15
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    I think there is insurance included only loan but I'm 25 so I don't know if what you're saying applies to me or not. I don't fully understand either....


  • Options
    #16
    sbsquarepants
    Registered Users Posts: 11,812 ✭✭✭✭sbsquarepants


    I've cleared a couple of CU loans from savings over the years, there's no problem doing it, I usually just make sure I leave enough in the savings so that if I needed to get a loan in a hurry it would be an option.


  • Options
    #17
    Anyone
    Registered Users Posts: 3,376 ✭✭✭Anyone


    another question wrote: »
    I think there is insurance included only loan but I'm 25 so I don't know if what you're saying applies to me or not. I don't fully understand either....

    There's a life insurance policy on your savings also, paid out on death. Its as follows:

    Balance @ 55 or lowest after: 100%
    Balance @ 60 or lowest after: 75%
    Balance @ 65 or lowest after: 50%
    Balance @ 70 or lowest after: 25%

    The general thinking is your savings are doubled when you die....that's not necessarily true as it depends on what age you lodged those savings.

    Anyway, you are only 25 so its not important.

    There is one other caveat on doing this by the way, and only something I have heard, but some credit unions are taking a Share to Loan as showing an inability to repay a loan, and it can therefore affect future lending. Ask your CU if they view it that way.


  • Options
    #18
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    Anyone wrote: »
    There's a life insurance policy on your savings also, paid out on death. Its as follows:

    Balance @ 55 or lowest after: 100%
    Balance @ 60 or lowest after: 75%
    Balance @ 65 or lowest after: 50%
    Balance @ 70 or lowest after: 25%

    The general thinking is your savings are doubled when you die....that's not necessarily true as it depends on what age you lodged those savings.

    Anyway, you are only 25 so its not important.

    There is one other caveat on doing this by the way, and only something I have heard, but some credit unions are taking a Share to Loan as showing an inability to repay a loan, and it can therefore affect future lending. Ask your CU if they view it that way.

    I'm heading in to them in the next hour or two so I'll let ye know how I get on. Hope they let me do it now as I've more or less made my mind up. But I definitely will ask them if it will affect their view on leading to me in the future. I think I will just need to make it as clear as possible that I can repay the loan for next year or two but that I'd just prefer not to have too.


  • Options
    #19
    another question
    Closed Accounts Posts: 1,386 ✭✭✭another question


    Update:

    Yes the CU allowed me to use my shares to clear the loan. The staff member did it for me at the counter but she was reluctant and asked me twice if I was 100% sure. I said I was. I asked her if it would affect my future borrowing and she said not really but yes to a certain extent whereby the shares were now going to be really low. I told her that I wasn't particularly worried about that because I feel I will build them up again quite quickly now that l the pressure was off me.

    Thanks for your advice everyone, I'm very happy with my decision and I can't believe I don't have to look at it on my CU slips from now on :)


Advertisement