Advice please re small loan

[minxthemanx]

This is going to sound silly, but am looking for sympathetic advice. There are various small things that need doing in the house - bits and pieces that together will come to about 5/6K. We haven't got money left over at the end of each month in the joint account that would cover that. I've got 3 options. Don't replace the things that need replacing, until we've got the money in current account (it won't happen.) Secondly, take out a small loan with Sainsburys or similar, according to MSE website, 5K over 3 years will cost £340 in interest. Enables us to get the jobs done, but will pay interest. Thirdly, and this is where I know I sound crap, use savings. The only reason we have some put away is that DS1 was very ill 4 years ago, and we received a critical illness payment. (we still have hospital trips to London on a regular basis, and it won't be stopping anytime soon.) I put half this money into a cash ISA which I can't touch, and half into a savings account which I can use. Of the £25k, about 2K has been used over the last 4 years to cover costs, loss of earnings when in hospital etc. So there is still a good lump sum there. BUT I am loathe to use DS1's money, as I feel it's not there for replacing the ripped kitchen floor, replastering the hall etc - it's there as we don't know what the future holds. He is in Year 9 at grammar school and doing well, but I feel massive guilt in using this money for the house. Am I being ridiculous in taking out a small loan rather than using this?

I did try further borrowing on mortgage, which only has 5 years left, but they won't lend less than 10K.

What was the critical illness payment intended for? Is it in your son's name? If it is, I don't think you should touch it, because I don't think you could repay it before he reaches 18.

How much is your mortgage per month? Just wondering how much better off you'll be when it's paid off. Also, what are the jobs that need doing?

Surely if you have no money left at the end of each month then you cannot furnish a loan?

To me the sensible option would be to sort out your finances and see what you can save then loan yourselves the money from DSs savings account and repay it with or without interest (at the rate in the savings account) as you see fit.

you will pay much less interest, the jobs would be done and the savings account will remain for DS.

If you work out that you cannot afford to do this then you cannot afford to do the work...however house maintenance for DS and yourselves seems to be a wise use of money if you can manage it.

Mortgage is 680 a month, have 5 years left, £37k. DS had a ruptured brain aneurysm at the age of 9 and was critically ill in GOSH for 3 days - we were advised to claim critical illness as our cover included the kids. The payment came to me and is an ISA/instant access savings account in my name. We haven't used it for anything other than covering costs of many, many trips to London/stays in hospital/loss of earnings and one trip to Centre Parcs when he first came out of hospital 4 years ago. He leads a perfectly normal life, sport, school etc (not contact sport tho), but was back in hospital earlier this year with a complication. Will need ongoing tests and appointments for the foreseeable future. Financial common sense would be to borrow the money from the savings, and set up a standing order to pay back monthly, but emotionally I feel awful about using it. Kitchen floor ripped and grotty, hall landing stairs paintwork dreadful and has been for years, one big double glazed window has blown.

Sorry didn't explain v well - could pay off £100 - £150 a month, but haven't got the large amount sitting around to get the jobs done now.

Surely the savings money is to benefit your child and having a clean safe home will benefit him.
Have you ha the jobs costed up because I ow;don't think they'd cost too much and it would be easyish for you to replace savings.

So you could pay back the money in under 3 years at £150 pcm and just over 4 at 100 pcm.

Financially I think it is a no-brainer but no-one but you can answer the "emotional" need to keep it intact for DS1...

don't forget you all receive a benefit from a nice home environment, DS1 too.

Yes you're right and the reason I haven't been able to afford to smarten up the kitchen/hall/replace window is because we've prioritised family holidays with our money, once bills paid, as it's been such a shitty 4 years for all of us. To use, summer holiday eg campsite in France, or week in Cornwall, has been essential to give us all fun and quality time. So anything house wise has just been left. Common sense is to borrow from the savings and pay back monthly; I need to get over the guilt! I guess it's stupid to pay interest on a small loan, tho of course I'll lose some interest on the savings if I borrow them.

You will lose less interest than you would pay to borrow.....

Yes the savings interest rate is below 2% as I need it to be easy access. Ok I need to have a talk with myself and stop feeling bad! Thanks for your perspectives.

I have to admit that with return rates as crap as they are, I would use your son's money to make his house nicer and then set up a standing order back into that account that without fail goes through

That way the banks do not profit
you get the house done
he benefits
all good

I would borrow it, £340 isn't much

use the ISA and pay him back. BTW NO ISA 'cannot be touched', the rules are that money can ALWAYS come out of an ISA although you may lose a bit of interest.

you can double your interest rate by using interest-paying current accounts which are by definition easy access. Look into this.

never take a debt if you have savings!

In these circumstances, you should borrow from your DSs savings, as long as you have the discipline to pay it back.

Added advantage is that he won't get nasty if you can't pay it back for whatever reason (illness, redundancy etc). It is silly to borrow when there is money sitting there.

It could also be the case that you may not get the great rate from Sainsbury's. I have an absolutely perfect credit rating and applied to them to borrow for an extension (we have most of the money in savings, but were about £5-10k short) and they offered a much higher rate, which I decided it wasn't worth it. I then applied to my own bank and got a loan at about 4%. I also looked on moneysavingexpert and found that Sainsburys were known for not actually offering their best rate (I'm sure they must meet the requirements of 51% of people getting the rate, but I wouldn't rely on getting the rate you expect).

I'd use the CI payment money. The positive effects of getting the work done will benefit the whole family. I'd then set up a Standing Order for the "spare money" you have at the end of each month to sort of pay it back straight away, maybe that will help with the "guilt" (of which you should not feel guilty, you are improving the home environment for everyone, so good on you).

I must say I would take from the normal savings before the ISA as the tax free is lost if the money from prior years is withdrawn

but either way : why give profits to a bank when you can fund things without doing so.

Are you sure that a £5k loan over three years will only attract a total interest amount of £340? That seems extremely low.

I Just popped the numbers into my mortgage sheet to test
docs.google.com/spreadsheets/d/1SetT9iDhO7IyxotgR9B0c6BOVr7NaxB95re_yOfn6oM/edit#gid=0
the second set of numbers is the important one.

At a rate of 8% over 3 years, the bank will take over £1000 in interest from you.

Use the savings and keep the money in your family.

I would borrow it from your son and pay it back, set up a standing order and keep a spreadsheet record of the loan and repayments. You could pay him some interest at the end too if you want to.

I didn't need to in the end, but when XH left and I needed to remortgage, I couldn't quite borrow enough. DD had 2K in savings and if I had needed to, I would have borrowed it rather than sell the house, as it was more important to her to stay where she was rather than have more upheaval. I would have repaid it.

As a separate issue, there are several children's bank accounts that are paying 3% interest on instant access, my DD's is with Lloyds, but there are others. Have a look on moneysupermarket.com. So you could move the money into an account in his name with you managing it and he could get the 3% gross interest on that money.

Don't feel guilty, borrow it, but make sure that you pay it all back :)

Thank you so much for all the answers. Was expecting to get flamed for having that much money sitting in the bank... I work, DH works, and I think you're all right in saying don't let the banks benefit by borrowing. I'll set up a, standing order and use a tiny bit of the crit illness money (the instant access savings, not the isa). Thanks everyone.

Good news. You could even take some of the other suggestions and actually get some real interest from the banks.