Author Topic: 0% interest $5k loan from work for 6 months - what to do with it?  (Read 756 times)

EfficiencyNerd

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I'm looking for some opinions here on a potential small savings/investment opportunity...

I got an interesting email from the president of my employer today. Basically, any employee who wants one can get a 0% interest loan of $5k, until Sept 31st. At that point it can either be paid in full or converted to a regular loan at a yet-unknown interest rate (email said details to follow). The purpose of this loan is to help with possible "stressful" situations due to the current global issues.

My financial situation - I don't really need the money. My fiance and I have >$100k in index funds in addition to a $10k emergency fund (which is currently earning a promo 3% interest until May 31st). My employment with this company is plenty stable (been with them for 3 years, and I'm one of a few software guys who knows their stuff really well). My fiance and I are planning a small wedding in September, so will have some slightly increased expenses between now and then, but nothing we can't handle. Currently we invest more than her entire (much smaller) income (so around 45-50% of our total income), and this savings rate will go up to probably 60-70% after we get married.

That all being said - should I take this 0% interest loan? And do what with it? Invest in stocks to take advantage of the current on sale market? Put it in a high-interest savings account? Pay it off immediately in September, or keep it and pay it off over time via payroll deduction? I realize that depends on the interest rate they give, but what rates would you keep it and what rates would you pay it off immediately?

My current thinking is twofold, depending on the interest rate it would convert to on October 1st... 1) take the loan and invest it immediately. The market could go down for several more months (or even years), which would be fine - I could convert to a loan and pay it off fairly quickly come September if need be. Or 2) take the loan and put it in the highest-interest savings account I can find, and just pay it off immediately at the end of September. Easy ~$50.

What would you do in my situation? All opinions and suggestions are welcome.

Wolfpack Mustachian

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #1 on: March 20, 2020, 02:06:39 PM »
A 6 month time frame is not nearly enough to invest it in the stock market at any time, much less with the current situation, IMO. At that point, it becomes much more like gambling, especially since you don't know the interest rate or general information afterwards if you didn't pay it off. You don't need the money, and the risk is high for little reward for stocks. Beyond that, I mean, depending on the effort of getting the money from your employer and putting it into a savings account for a few bucks of interest over six months may be worth it to you but wouldn't to me. You'd be better off spending the time credit card hacking. It would be a hard no for me.

EfficiencyNerd

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #2 on: March 20, 2020, 02:48:14 PM »
A 6 month time frame is not nearly enough to invest it in the stock market at any time, much less with the current situation, IMO. At that point, it becomes much more like gambling, especially since you don't know the interest rate or general information afterwards if you didn't pay it off. You don't need the money, and the risk is high for little reward for stocks. Beyond that, I mean, depending on the effort of getting the money from your employer and putting it into a savings account for a few bucks of interest over six months may be worth it to you but wouldn't to me. You'd be better off spending the time credit card hacking. It would be a hard no for me.

Thanks for your input! A couple further notes...

I'm assuming, once they give us more information, I will know what the interest rate/general info will be after the initial ~6 months. Otherwise I'm not sure I'd set it up without that info.

Sadly in Canada credit card hacking is not nearly as lucrative as in the US :( I still do it to some extent, but there just aren't the breadth of options here as in the US.

Wolfpack Mustachian

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #3 on: March 20, 2020, 02:52:52 PM »
A 6 month time frame is not nearly enough to invest it in the stock market at any time, much less with the current situation, IMO. At that point, it becomes much more like gambling, especially since you don't know the interest rate or general information afterwards if you didn't pay it off. You don't need the money, and the risk is high for little reward for stocks. Beyond that, I mean, depending on the effort of getting the money from your employer and putting it into a savings account for a few bucks of interest over six months may be worth it to you but wouldn't to me. You'd be better off spending the time credit card hacking. It would be a hard no for me.

Thanks for your input! A couple further notes...

I'm assuming, once they give us more information, I will know what the interest rate/general info will be after the initial ~6 months. Otherwise I'm not sure I'd set it up without that info.

Sadly in Canada credit card hacking is not nearly as lucrative as in the US :( I still do it to some extent, but there just aren't the breadth of options here as in the US.

Good points on both accounts. Yes, depending on the repayment terms  - if they are very generous - it might be worth trying out. Didn't know that about credit card hacking in Canada. Sounds like you've got a good handle on things :-).

Dagobert

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #4 on: March 20, 2020, 05:21:13 PM »
How does taken the loan affect your relationship with the company longterm?
Some collegeaus of mine got loans from my employer for some emergencies of theirs. Interest they pay is far above current rates and still with every time the ask for a raise of pay get the response they should be thankfull the company helped them in their times of need and not expect a huge raise now.

The interest/profit on a loan like 5k should be a few hunderd/maybe a thousand at most dollar. That doesn't outweigh any damage on your reputation.
Having FU money / not needing on a paycheck sends strong message, sometimes with positive effects on promotions etc. Taking a loan sends the opposit message.
Something to consider....

Fuzz

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #5 on: March 21, 2020, 09:30:31 AM »
Same reaction as @Dagobert

Anything with enough return to justify the hassle is just gambling (even if you doubled it, doesn't change your financial picture in the long run). Anything safe enough that you don't lose it (a money market account), doesn't do anything for you.

EfficiencyNerd

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #6 on: March 21, 2020, 09:41:13 AM »
How does taken the loan affect your relationship with the company longterm?

This is actually a really good point, and something I hadn't yet considered. While so far my opinion of the company has been very positive (they have a lot of loyalty, and for good reason as they treat employees very well), I'm honestly not sure how this would affect my relationship with them. In addition I'm quite certain my boss would know I don't need the money as I'm open with my frugal ideas, so it might reflect on me poorly if I was just taking advantage of the loan to make a quick buck.

This is just why I posted here - to get well-reasoned responses from people like you and @Fuzz. So thanks!

SheepDog

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #7 on: March 21, 2020, 10:06:12 AM »
I am against giving anyone, especially my employer, leverage over me.  Like others have mentioned, your employer may use the fact you took their loan against you in some way or another even if you pay it back.  And that is a no go in my book.

Im very open with my employer letting them know I don't need the job.  I work there because I want to, not because I have to (financially).  It has kept them from bothering too much me so far (knock on wood) and has even led to some pretty neat promotions or assignments that someone with lower seniority like me usually doesn't get.  And this is especially intriguing because my employer has a HUGE reputation for high turnover due to eating themselves (lots of BS internal investigations and such).

TL/DR:  Avoid giving employer leverage, do everything you can to increase your value to employer or independence from employment.

slappy

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #8 on: March 26, 2020, 07:50:50 AM »
I'm not sure why you would take a loan that you don't need. This forum often advises uses leverage for investing, so that argument doesn't make sense. I mean, I can see the temptation, but overall it doesn't make sure.

FLBiker

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #9 on: March 26, 2020, 08:08:41 AM »
I agree with the other advice -- I'd only take it if it was taking the place of an interest bearing loan I was going to get for some other reason (like if you'd been considering floating CC debt for a few months for wedding expenses).

FatFI2025

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Re: 0% interest $5k loan from work for 6 months - what to do with it?
« Reply #10 on: March 26, 2020, 08:44:11 AM »
I wouldn't take it for two reasons. The first is that it's not enough to be worthwhile. You could arbitrage it into some short term treasuries yielding 1%. That's $25 over the six month term. [Sarcastic] Thrilling.

But more importantly it would look bad to the employer. People will take the loan because either 1) they can't manage their personal finances or 2) they're taking advantage of a hardship benefit. Neither of those are good things for your corporate reputation.

I'm with @SheepDog -- in my experience as long as you're not too arrogant about it, subtly letting your employer know that you don't depend on them financially can lead to promotions and raises. It indicates you have exceptional executive functioning, which is very valuable in business. Taking the loan would tarnish that image.