What to Know About Borrowing

Reminder - all borrowing is simply your money from the future that you choose to spend now.

When you borrow to buy a depreciating asset - (say that cool members-only leather jacket) and you finance it at 18% on a credit card - you are paying $100 today for the leather jacket, but if you borrowed $100 from your future self with a promise to pay it back with interest when you know it will likely not be worth what you paid for it.

When you buy a depreciating asset, you are the collateral.

When you borrow to buy an appreciating asset - (say that cool house on the corner) and you finance it at 10% with a mortgage loan - you are paying say $120,000 today for the house, you are borrowing $120,000 from your future self with a promise to pay it back with interest. You likely won't give the house to goodwill when you are done with it as it will likely be worth more than what you paid for it.

When you buy an appreciating asset, the asset is the collateral.