Is this possible???????and has anyone ever done this?????????

Question

If i took out a loan from one bank for one million pounds,would it be posibble to withdraw the full ammount and open another account with the same funds and make an initial proffit on the interest gained on the new account whilst also keeping up repyments from the bank i originally borrowed from??????????

Answer 1

If you look at bank rates; the chances are that they interest they charge you on the loan will be MORE than the interest that you get on a savings account. Meaning a net loss for yourself.

If you find out otherwise - let me know.

p.s. not many banks will give you a load of a millions pounds on a whim.

Answer 2

What you are talking about is a variation on something that is done all the time. It isn't usually done with bank loans, though.

Hedge funds do something called "Long Short" investing. They sell some stock short (this is like borrowing) then take the money from that and buy other stock. They might do this in such a way that the stock market risk goes away & they are making a play as to how the one group will do against the other.

Your question was about loans -- and there is a way to do something similar with interest rates. An interest rate swap is an investment where one party agrees to pay a fixed interest rate on -- say -- one million while the other party agrees to pay a floating rate on the same value. If I were able to see two investment banks that offered different rates on these, I oculd buy one & sell the other, making the difference.

These are exactly the kinds of things that hedge funds do -- but they are not usually available to most of us.

That being said, I know of people who got student loans in the US at very low interest rates. They then invested them at higher rates and made the difference.

Answer 3

Yes and No, the primary earnings of a lender are from the "spread," which is the difference between what it pays for money (from the government, other banks, and depositors) and what it earns on money (from investments and loans).

As such, banks do exactly what you propose all the time. It is called "arbitrage." The key is that a bank has the ability to borrow in the millions and can therefore make a sizable profit off of fractional differences in interest rates.

As an individual, you would have to have a great deal of assets to qualify for a loan that large, which begs the question. If you had enough money to qualify for the loan, then you had already found a much better way to make a lot of money.

Answer 4

Every businessman has done it but for varying amounts. You go into a high street bank, tell them you want to borrow, how much, why and what security you can offer.

If they agree then they lend you the money, both of you having accepted that what you are using it for will pay you more than the lending bank charges and interest.

If the venture you showed them was an investment in some other bank paying more interest on the amount than the lender charged and they thought it was as good a bet as you did then they would be happy to finance you. Actually that is the only basis they would lend it to you.

That is how banking works. Always has, not unique.

If you just want to make money by taking advantage of banks, then you wait for one of those credit card offers to transfer your exising card balance to a new card at 0% interest for the first 6 months, then you max your old card, transfer the full balance, then invest what you got out of your old card in a bank account for 6 months, then pay off the new card balance and pocket the interest.

By the way, don't go for the 2 full cost mortgages on one propertry idea above mine. It is fraud, illegal, common enough that you will get caught and not worth the jail time.

Answer 5

Hmm, if it were that easy, everyone would be doing it. Assuming a bank trusts you enough to write a loan for a million pounds, I suspect that they may only allow you to "draw" on the funds as needed, i.e. supported by bills showing expenditure of funds already disbursed.

Which banks do you know that are paying a higher interest rate than the interest on your loan - normally returns on savings investments are lower than the cost of borrowing.

What interest rate would you need to get at the new bank, so that the interest/coupon payments exceed your debt service payment on the original loan? If that's not the case, then what interest rate would you need EACH term on the new account to compensate you for your declining principal?

Finally, if you do find somewhere which advertises a higher rate of return, might I caution you to remember that risk is positively correlated to return, the higher the risk the higher the return.

Answer 6

Depends on the interest rate: if you borrow the 1 million pounds, and invested it at 20%, and the loan repayment was 9%, then yes you would make a gross gain of 11%, less capitol gains tax of some 36%, (on the gross) so you would make like 3 to 5% IF you could be guarenteed on the numbers.

So, call it 4% on 1 million pounds/2.2 million dollars american would be about 60,000 per year, in theory give or take a bit- sorry if my numbers are off, I haven't had coffee yet.

Answer 7

Think about this a minute. If banks loan money at less than they pay out in interest, how long would they stay in business. It would be very rare if you could find any bank that is paying more than any other bank is charging on loans. Your idea has worked for some people who invest in stocks and real estate but you better know those markets well.

Answer 8

A better idea, if you're a home owner.
Try a refinance loan from two banking organizations at the same time. don't tell the other you have two loans working. Close the loans on the same day. you now have the monies for twice the value of your home and your home is worth half the money you received. Truthfully, at this point, if you default on the loan repayment it won't matter, because you'll be far away living off the profits!!

Answer 9

Sure you can if the bank permits/ You may have to satisfy the bank that you are using the borrowed amount for the purpose for which it was availed. I wonder how can you repay the loan instalments without burdening yourself as the difference between the interest you pay on the loan and interest you earn on your deposit will be to your disadvantage.

Answer 10

Probably possible but how much interest would you be paying versus how much will you earn. Also I would not want to juggle 2 accounts like that. If you're late on a payment the late payment charge would eat up any interest you might earn. Also banks usually have the interest rates on borrowing alot higher than interest you would earn on deposits. If not, everybody would do this.