- Introduction
- The Economic Stages of Unemployment
- Methods of Providing Supplemental or Temporary Income
- Loans
- Retirement Assets
- Comparing Ways to Borrow
This table summarizes the pros and cons of different ways of borrowing money. When you're looking at more than one borrowing option, you can use this table to evaluate them against each other.
|
WHAT'S THE BEST WAY TO BORROW? |
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|
Source of Funds |
Interest Rates |
Fees |
Availability |
Tax-Deductible Interest |
Risk Factors |
|
Refinance Your Home Mortgage |
If market rates are lower than your current rate—check it out |
If you stay in the home long enough, you will eventually break even. |
Fairly easy |
Generally yes |
Risk of losing home if in default |
|
Home Equity |
Typically lower than most other loans |
Low |
Easy |
Generally, If used to "buy, build, or substantially improve" the home that secures the loan |
Risk of losing home if in default |
|
401(k) Plan (If Available) |
Fairly low |
Little, if any |
Easy |
No |
Risk of depleting retirement fund if you leave and cannot pay the loan back. There is also an "opportunity" cost when market is rising. Additionally, the loan may be considered a taxable withdrawal if still outstanding when employment ends. |
|
Life Insurance |
May be low |
Depends on insurance company |
Easy if you have sufficient cash value in your policy |
No |
If loan is not repaid, proceeds at death will be reduced and interest on unpaid amount may continue to compound. |
|
Business Loan |
Moderate |
Depends on purpose of loan |
Difficult |
Yes |
Business assets may be at risk |
|
Secured Personal Loan |
High |
Little |
Difficult |
No, unless money is used to purchase investments |
Collateral at risk |
|
Unsecured Personal Loan (Credit Cards) |
Highest |
Little |
Moderate |
No |
Temptation to accumulate expensive debt quickly |
|
Relatives or Friends |
Depends |
None |
Difficult to find a willing lender |
No |
Jeopardize relationships |
