Is Getting a Loan Against Shares a Good Idea?..

torrevieja

Hi im just looking for advice,

i wanted to get a loan for a car from the credit Union and i originally asked for an amount and the person said i should take it against my shares the rate been 6.5%

What i just want to know is this a good idea as its against most of my savings and i would only have a small amount free, and also how does that work if god forbid i passed away during the loan would my wife still get my savings (shares) and would the loan also be paid ?

Also should i get all the loan rather than say 75% of it any help appreciated

torrevieja

anyone ?

Nervous Wreck

torrevieja wrote: »

anyone ?

The shares are collateral on the loan. If you died, your shares would pay off the loan. If there was any excess, it would go to your estate.

lovehathi

hi If you draw loan against your share then interest is cheap .but they can only give the amount you have saved in shares. If you take car loan they will still look at your share and sometimes they don't let you withdraw from your share till you pay your loan.

torrevieja

Nervous Wreck wrote: »

The shares are collateral on the loan. If you died, your shares would pay off the loan. If there was any excess, it would go to your estate.

if it was't taken against the shares would that be a better deal ?

bpmurray

If your shares are the only collateral you have, you might as well use them for the loan - you're not going to spend them any time soon otherwise, are you? If you're borrowing more than you can really afford, you need to ask yourself if you really need a car, or perhaps a car as expensive as this one.

The other questions are really associated with life insurance, and should be unrelated to the loan.

Browney7

Why not use the savings/shares to buy the car?

torrevieja

guess it keeps my savings still there

Browney7

torrevieja wrote: »

guess it keeps my savings still there

But if you can't withdraw as long as the loan is active they aren't really savings? Why not use the savings and then make sure you save every month what the loan repayment would have been?

Youre borrowing at 6% but probably not earning any more than 1.5%/2%?

twowheelsonly

I made a conscious decision to stop taking CU loans a few years ago when they practically wanted the deeds to the house and the blood of my firstborn. (It's a work CU and deductions are made at source so the chances of defaulting are pretty small).

Since then I've kept a reasonable 'rainy day fund' in there but have saved, then spent, wash and repeat. It means I always have some money that I can access if needs be and any money that goes in there (direct from wages) is mine and not going to service a loan.
I have enough in there to get a decent sized loan should I unexpectedly require it at any stage but from week to week I'm not paying back anyone.
When I was young I had to save up for stuff, now I'm just doing the same thing again after years of borrowing for 'must have' stuff that I didn't actually need half the time and I can't see myself going back to that anytime soon.

My advice to the OP is to do the same (depending on amounts obviously...) Your capital won't be long building up again as anything you lodge is going to that capital and not to service the loan. You'll also be able to access your capital if needs be which you may not be able to do if you have a loan out (against your shares). Discipline is the key as you have to promise yourself not to allow the capital to fall below 'x' amount.

exaisle

Browney7 wrote: »

But if you can't withdraw as long as the loan is active they aren't really savings? Why not use the savings and then make sure you save every month what the loan repayment would have been?

Youre borrowing at 6% but probably not earning any more than 1.5%/2%?

Good point. Use your shares to buy the car and set up a standing order to build up the shares again in the CU over the term that you would have borrowed. It'll cost you less than a loan...

torrevieja

exaisle wrote: »

Good point. Use your shares to buy the car and set up a standing order to build up the shares again in the CU over the term that you would have borrowed. It'll cost you less than a loan...

I was just thinking would it not be better to borrow as i am self employed and i would be better with depreciation and vat on my tax for the year etc

Marcusm

Nervous Wreck wrote: »

The shares are collateral on the loan. If you died, your shares would pay off the loan. If there was any excess, it would go to your estate.

IIRC. Most credit unions provide an inbuilt life cover (used to be from Eccu the ILCU inhouse life assurance company) which automatically discharged all loans outstanding on the death of a member and credited a further 100%to savings. My experience of this is from 2006.

uck51js9zml2yt

The loan to share ratio is normally 1 1/2 to 1 or more if you have a loan history.
Generally a CU will insist you have shares to a ratio of loan so using them isnt an option as you would have no collateral for the balance of the amount.

If you've take out members insurance then your loan is covered in the event of your death and an insurance value is paid to your next of kin.