25k Career Starter Loan (2.99% APR)

Submitted by njvicente21 t3_z8ymty in personalfinance

I will be graduating college next May and I can take out a $25k loan at 2.99% up until May 2023. Repayment is over 5 years and deferments for the first 6 months.

I think this sounds like a good opportunity to take advantage of the low interest rate and make a good ROI. I have virtually zero expenses as I will be living at home after I graduate college. I also have no debt and will to 100% of the loan to invest. Im not sure whether to do this or if it is too risky and not worth doing.

EDITS:

-Loan is fixed at 2.99% and is from USAA. They only offer it to those about to commission as an officer in the military.

-I would be putting about 40% into a savings account yielding 4% APY. Other 60% would be invested into stock market in companies I believe are undervalued or perhaps a growth ETF.

-As of now I do not have a job lined up, but I am looking to get into real estate and the finance field

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maeve_dustaine t1_iye02tm wrote

Why would you take out a loan when you don't have anything specific in mind for it? If you were planning to start a business, sure maybe. But you plan to do what, 'invest'? Not a good idea there's no guarantee you'll outperform that interest rate.

Just focus on getting a full time job and saving up your own money while you have the luxury of low monthly expenses.

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njvicente21 OP t1_iye0vf6 wrote

If I took the loan, plan would be to put roughly 30-40% in my high yield savings account with 4% APY. Other 60-70% I would invest in undervalued, positive cash flowing companies.

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CoyotesAreGreen t1_iye176m wrote

> Other 60-70% I would invest in undervalued, positive cash flowing companies.

Gambling. You're taking a loan and paying interest to gamble the money.

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TyrconnellFL t1_iye9j11 wrote

The first part works unless interest rates drop and the savings rate is no longer equal to the loan. Five years is long enough for anything to happen. But if you have a loan that lets you prepay without penalty, that’s okay. You could make a little interest until you can’t and then be done.

Buying stock with it is high risk. What if your investments tank? Can you still pay back the loan? That’s leveraged investing, which is highest risk. Unless you can afford to lose more than 100%, it’s a bad idea.

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dbjisisnnd t1_iye103f wrote

With virtually zero expenses, why would you take out any loan? At 5 years, a $25K loan is roughly $500/mo. payment. That’s huge. You may want to get an apartment one day in the next 5 years.

And look at it this way: why would some company give you a loan without any indication of how you will pay it back, since you currently don’t have an income. Crossing their fingers that you’ll have a job? And a $25K loan over 5 years

I have a student loan with a lower percentage than that 2.4%, I think) but have been paying off that $25K for 15+ years. And there will certainly be some charges for deferring it 6 months. Either higher interest or huge fees added to the principal.

My advice: unless you ABSOLUTELY need the money, run. Run far and fast.

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EWCM t1_iyfdiyu wrote

You may want to search over at r/MilitaryFinance. This question has come up a few times there and you’ll find more people who did what you’re thinking of.

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PurpleVermont t1_iye0ukr wrote

I'm pretty risk averse, so I would be pretty cautious about borrowing money to invest.

Do you have a job lined up that you will be using to make the payments, or are you planning to pay it back out of the money invested?

If you need the loan proceeds to pay off the loan, you could still do something pretty conservative with the money like a treasuries ladder (if in the US) and just pay it off if the yields on those ever go below the 3% interest you are paying. Assuming you can do an early repayment with no penalty.

If you don't and are confident you can make more than 3% on the money over the course of the 5 years, and can just leave the money invested for the long-term, so you're just kick-starting your investing with this money, then that's less concerning. But if you're using income to pay back this loan that you should be putting in an emergency fund or investing in retirement savings etc., I wouldn't.

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