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Financial Learning Center


Other Borrowing Approaches

Quick Comparison of Borrowing Options

Borrowing Considerations

If you are considering borrowing to meet your objectives, you will have to go through a series of steps as part of the borrowing process:

  • Make sure you explore other alternatives before deciding to borrow money.
  • Take a look at your current debt situation to see if you can financially handle more debt.
  • Once you decide to borrow, look at all the different sources of funds that are available to you.

The table below summarizes aspects of different ways you can borrow money.

Source of Funds

Interest
Rates

Fees

Availability

Tax-Deductible Interest

Risk Factors

Refinance Home Mortgage

If market rates are lower than your current rate, consider this option.

Varies

Fairly easy

Generally yes

Risk of losing home if in default

Home-Equity

Typically lower than most other loans

Low

Easy

Generally yes

Risk of losing home if in default

401(k) Plan

Fairly low

Minimal, if any

Easy

Generally no

Risk of depleting retirement fund

Margin Loans

Fairly low

Minimal,
if any

Easy

No, unless money is used to purchase investments

If market value of collateral declines, you may have to make up the difference in cash

Life Insurance

May be low

Depends on insurance company

Easy if you have sufficient cash value in your policy

Generally no

If loan is not repaid, death benefits will be reduced and interest on unpaid amount will continue to compound.

Business Loan

Moderate

Depends on purpose of loan

Limited

Yes

Business assets may be at risk

Secured Personal Loan

High

Minimal

Limited

Generally no

Collateral at risk

Unsecured Personal Loan (e.g. credit cards)

Highest

Minimal

Limited

Generally no

Temptation to mount up expensive debt quickly

Relatives or Friends

Varies

None

Limited

Generally no

Jeopardize relationships

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