Author Topic: Would you take this loan?  (Read 1753 times)

bluecheeze

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Would you take this loan?
« on: October 21, 2014, 03:49:29 AM »
Currently offered by my employee a loan up to $155k to be repayed over 3 years at an interest rate of 1.6%  There is a $600 initial fee that is taken out of the $155k.  Rate is locked for 3 years and there are no other strings attached.  There are no prepayment penalties though I would be required to pay the balance if I ever quit the company (I am currently holding enough to cover this).

I was considering using this money to buy say....$155k of Vanguard Total Stock Market.

I would have zero cash flow issues repaying this loan monthly- it would just cut taxable investing from 11,000 to 6,500 due to the repayment of 4,500 per month.

Zero debt.  I do understand this is a risk.

Would you consider this risk? From my calcs break even would be if the market gets 1.7% per year.
If the market gets 5% we are talking about 25k gains
10% is 51k.


Pooperman

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Re: Would you take this loan?
« Reply #1 on: October 21, 2014, 04:14:35 AM »
I would personally not take such a large risk, and only do so when the market crashes (still wouldn't do as much as you are suggesting). The money you put in every month is interest free and is not callable, so my suggestion is no.

TheNorwegianGuy

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Re: Would you take this loan?
« Reply #2 on: October 21, 2014, 05:20:44 AM »
In the circumstances I have I would take that loan without any doubt. Just having the money in the bank would be profitable here (without any risk). After inflation and tax deduction it would be not only free money, but I would be paid to loan it. I would probably put most of it savings account (>3% interest rate) and the rest in "Bond funds" and some in index funds (<20%)

dragoncar

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Re: Would you take this loan?
« Reply #3 on: October 21, 2014, 04:44:13 PM »
I would personally do it, except for the repayment caveat.  What exactly happens if you separate from your employer and don't repay immediately?  Do they have any collateral or do they just ruin your credit?

To be more specific, I am doing this at 1.06% with IB margin.  I have limited myself to my savings over the next year (at which time I expect rates to start going up).  This level of leverage is not particularly high, and would require an unprecedented drop in asset prices to result in a margin call.

Double check, but I think the interest would be tax deductible against interest earnings if used for investment purposes.