better to withdraw savings or borrow

G

gailey

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At the moment I have €8,000 saved in our local credit union. We have borrowed against our shares in the past and paid off our loan, however I would like to replace our kitchen and instead of borrowing for it, I want to withdraw the €8,000 to put towards the cost and then starting again with saving, however my husband disagrees and wants to borrow the money in case we need funds in the future. We cannot agree on what to do and would appreciate any advice. I don't have any other loans except for our mortgage and would like to keep it this way. Would it not be better to withdraw our savings and start saving again. At least we would be loan free. If we went for a credit union loan, surely it would be like borrowing our own money and having to pay interest on it. What should we do?
 
You don't say what interest you're (a) earning on the savings, or (b) would have to pay on the loan*. But if you have savings, and no debts to service other than your mortgage, I'd be inclined to use the savings and borrow as little as possible. If you end up needing more funds for something in the future, presumably you could borrow then, rather than now? It doesn't make sense to borrow money 'just in case'...

* Incidentally, a new kitchen would certainly qualify for a top-up loan at your current mortgage rate, which would be a lower % than any personal loan. But I'd only recommend you do that if you can pay the €8K or €10K back sooner, without incurring penalties. If you spread it over the life of your mortgage you'll have a low monthly repayment but will end up paying back far more over the life of the loan.
 
Don't forget that borrowing from the CU may not be as cost effective as borrowing from other lenders - you have to factor in the cost of credit and the opportunity cost (after any interest or dividends earned are factored in) of keeping money on deposit or in shares while borrowing. In general it doesn't make sense to borrow while maintaining savings even though many people irrationally think that they should borrow and keep their lump sum intact. It would often be better to use savings to fund purchases thus incurring no interest costs and then try to save up a lump sum again for future use. Ultimately a cost/benefit assessment is required and ideally you should crunch the numbers to see which is the most cost effective solution. I strongly suspect that it would be using your savings for the purchase rather than borrowing.

Post crossed with the previous one.
 
Thanks for the replies, I will convince husband to withdraw savings (account is in his name worse luck) I am ashamed to say I do not know what interest rates are at the moment for saving and borrowing with the credit union but I do feel that withdrawing is the best option and saving again.Thanks for the help.
 
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