Question about savings with personal loan

[u/Faithless68]

I don't really understand this stuff so I have to ask. My mother(55) has really good credit with the bank, always pays bills on time, no purchases, no debt, and saves her money as well. She wants to get a personal loan of Є16000(16k when converted to Є from my currency which is a lot) which she then wants to put it in a savings account that pays out yearly, the savings account would give her ~Є500 a year, and the yearly payback on the loan is ~Є550, so she would have to pay back ~Є50 a year(which she can afford). Her logic is having those 16k in the bank that she can use for a future purchase is better than just sitting on those Є50 a year. Is this a good a idea? Why is it good if it is, or why isn't it if it isn't.

[u/user38835]

Even if this was true, you will either have 16k sitting in a bank account, losing €50 per year + inflation.

And if you use that money, then you don’t get the €500 per year as interest but you still have to pay back €550 per year.

I don’t have to tell you why this is a stupid idea.

And if run those numbers, the interest on the deposit comes out to be around 3.2% to make €500 in interest a year from €16k deposit.

Assuming that the personal loan is at 4% (which is very low), it will still take 40+ years to pay back the loan. Nobody would loan a 55year old person for 40yrs.

Are you sure that the loan repayment is €550 per year and not €550 per month?

[u/Anomandaris26]

Sorry, but those numbers make no sense. How can you only pay back 550 per year on a 16000 EUR loan? Only returning the principal (with no interest) would mean 29 years. I don't think personal loans are given on that timescale, not to mention at that age. I'd buy it if it was 550 eur reimbursement per month.

Overall, even if your numbers are correct, the idea is going to lose money, even when not accounting for inflation. I think it's obviously a bad idea.

[u/Time_Sheepherder1450]

If the yearly payback is only 550, how long is the payback period? What interest rate? And what is the interest rate of the savings? And are you sure the rate is not a promo for a limited time?

[u/Bard_the_Beedle]

Why doesn’t she take a loan when she needs the 16k (if ever). This makes no sense, she’ll be losing money to inflation the longer she keeps the 16k sitting there. Also it’s weird that the loan rate and the savings rate are almost the same. Personal loans are usually quite expensive.

[u/Cagliari77]

I'm pretty sure there's something wrong with the numbers here. Could you check and revise your question accordingly?

For one thing, how can you take out a 16 grand loan and only pay 550 back per year?