Without my asking my bank has offered me a £10,000 loan over 3 year at 3.8% APR fixed. They say that over 3 years the total amount payable will be £10,586.52. This sounds quite good VFM.
On the other hand my pension pot could do with a boost. On top of this my free bank account offers 5% gross interest on balances up to £2500.
Would the following make financial sense or suicide?...
Get the loan of £10,000 and pay £7,500 into my pension. Retain £2,500 into my bank and never touch it. I will earn around £100 per annum after (20%) tax meaning that in 3 years I will earn £300. At the end of the 3 years pay the remaining £2,500 into my pension also.
I'm willing to bet the pension gross will be bigger than the £286.52 I will end up paying the banks over 3 years for the benefit of having £10,000 up front. And I pay around £500 into my pension every month as it is, so that would cover the loan repayments and then some.
Is this financial sense or suicide? Of course, this is assuming pension growth is reasonable.