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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