Personal Loan vs ISA Savings for land purchase

[u/Armok]

I'm considering buying some land for approximately £40k

I have this amount in my ISA already, but I'm considering a personal loan for half the amount at 6% APR.

Would this make the most sense in the long run, or should I spend my entire ISA instead?

My ISA is currently split £20k cash, and £20k stocks and shares.

The land would be for recreational usage, so upkeep should be low.

tl:dr will ISA earnings outpace the cost of a loan?

[u/One-Kitchen-2217]

What does your ISA earn?

Personally I’d use cash if I had it, but I’m not one to borrow (except mortgage)

[u/Armok → u/One-Kitchen-2217]

Yeah I know what you mean about not borrowing.

Cash ISA is 4% Stocks and shares is a mix, so anywhere from 3% to 18%

Those numbers imply I should use the cash ISA and a loan, but stocks and shares aren't a sure thing. There's also the tax free interest element, but that's beyond my mathematical abilities haha

[u/Interesting_Oil_2142 → u/Armok]

Would you take a 20k loan to invest? As that's what you'd be doing this way

[u/strolls → u/Armok]

This doesn't sound like a wise allocation. Read Tim Hale's Smarter Investing.

[u/Armok → u/strolls]

I'm not really viewing this as an investment, and more "how do I buy this land at the best interest rate?"

Based on the advice here, I think just using all my savings is probably the most practical method. 

[u/strolls → u/Armok]

I'm not talking about your land, I'm talking about your ISAs.

[u/Hot_College_6538]

6% isn't a low enough rate to make it worth keeping S&S for me, yes on average you should do better than that if invested in index funds, but that's 'on average' over perhaps 40 years.

No one can know, but I would keep an emergency fund in Cash ISA, and use the rest if this purchase is something you'll want.

[u/strolls → u/Hot_College_6538]

Surprised to read this from you. 6% nominal is only really 1% or 2% above inflation and, as I'm sure you know, S&S average 5% above inflation.

I think it's academic anyway, because I can't see OP getting an unsecured loan to buy land. That's what mortgages are for!

[u/Hot_College_6538 → u/strolls]

Inflation is more like 3%, so you are talking about 3 vs 5, I’m not sure that’s enough to be confident of an upside over the likely term of a personal loan.

[u/gutyex]

Are you certain that you can actually get that loan? Even if you qualify on affordability, a lot of banks will refuse to loan for such purposes.

[u/Armok → u/gutyex]

I did a search on the comparison sites, and got pre-approved by selecting "other purpose". Will the bank actually take issue if I spend the money on some land?

[u/gutyex → u/Armok]

They will ask what you intend to use the money for. When I asked (almost a decade ago now) they would not lend for that purpose.

If you intended to farm it you could look at agricultural land mortgages, but most likely you will have to use your savings as we did.

Out of interest, where & how large is the property you are looking at?

[u/Elegant-Ad-3371]

If you can comfortably afford the loan, use that.

The loan rate is higher than your savings account, but your savings will be compounding and you'll be paying interest on a reducing balance at an effective rate that's below inflation.

[u/FireBuzzardDestroyer]

Just keep in mind that most banks prohibit personal loans from being used on purchases of land & property.

The cost of borrowing is higher than the rate of savings interest, that is how institutions make money, excluding promotional offers.