- People Aren't Saving Enough
- Racking Up Debt
- What You Will Learn in this Section
- Should I Borrow Money?
- Total Cost of Borrowing
- Think Before You Borrow–Key Considerations
- Where Should I Borrow?
This chart shows the total cost of borrowing $20,000 at various interest rates and repayment periods.
|
Interest Rate |
5-Year Loan |
10-Year Loan |
15-Year Loan |
30-Year Loan |
| 3% | $21,540 | $23,160 | $24,840 | $30,240 |
| 4% | $22,080 | $24,240 | $26,640 | $34,200 |
| 5% | $22,620 | $25,440 | $28,440 | $38,520 |
| 6% | $23,220 | $26,640 | $30,420 | $43,200 |
| 7% | $23,760 | $27,840 | $32,400 | $47,880 |
As you can see, borrowing can be costly, especially if you take out a long-term loan. It is important to look at other alternatives to borrowing before making a final decision.
Before you borrow, you should compare the after-tax interest rate you are earning on your assets to the after-tax interest rate you will have to pay to borrow money. For example, suppose you have the $20,000 you need in a savings account earning 1% interest. After paying taxes on your interest (e.g., at a rate of 25%), you are really earning an after-tax rate of 0.75%. Unless you can borrow money at an after-tax rate below 0.75%, you'd be better off using the money in your savings account (unless it is your emergency fund). See the following illustration of how this after-tax interest rate is arrived at.
|
a) Current Interest Rate |
1.0% |
|
b) Marginal Tax Rate |
25.0% |
|
c) Multiply (a) times (b) |
.25% |
|
d) After-Tax Rate of Return |
|
- ARE NOT A DEPOSIT
- ARE NOT FDIC-INSURED
- ARE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- ARE NOT GUARANTEED BY THE BANK
- MAY GO DOWN IN VALUE
Important information about procedures for opening a new account
To help the government fight the funding of Terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.
What this means to you: When you open an account, we will ask you for your name, address, date of birth and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents.
Investment products are offered through Osaic Institutions, Inc., Member FINRA/SIPC. Insurance products offered through Osaic Institutions, Inc.
