Can You Borrow Against Your Own Money?

Borrowing against your own money involves using assets you already possess as collateral to secure a loan. This approach differs from traditional unsecured loans, where a lender primarily assesses your creditworthiness. Pledging an asset reduces risk for the lender, which can lead to more favorable loan terms, such as lower interest rates or larger loan amounts. This strategy allows individuals to access liquidity without selling their valuable assets, preserving their potential for future growth or maintaining ownership.

Leveraging Your Savings and Investment Accounts

Individuals can access funds by borrowing against liquid assets, such as savings accounts, Certificates of Deposit (CDs), and brokerage investment accounts. Secured personal loans often use a savings account or CD balance as collateral. These loans carry lower interest rates, starting around 3.50% as of August 2025, because the lender faces minimal risk. Funds in the pledged account remain frozen or inaccessible until the loan is fully repaid.

Secured personal loans are obtained through banks or credit unions, which place a hold on the designated savings or CD balance. For investment accounts, individuals can utilize margin loans, where a brokerage firm lends money using the investment portfolio as collateral. Margin loans offer flexible repayment and variable interest rates, typically starting around 7.99% to 12.575% as of July-August 2025, depending on the loan balance.

A margin call occurs if the value of collateralized investments drops below a certain threshold, known as the maintenance margin. If a margin call is issued, the borrower must deposit additional cash or securities to meet the required level, or the brokerage firm may sell assets to cover the shortfall. This can lead to forced selling of investments, potentially at a loss.

Utilizing Your Home Equity

Homeowners can access significant funds by borrowing against their home equity. Two common methods are home equity loans and Home Equity Lines of Credit (HELOCs).

A home equity loan provides a lump sum repaid through fixed monthly payments over a set term, often 5 to 30 years. Interest rates are typically fixed, offering predictable payments. As of August 2025, the national average interest rate for home equity loans is around 8.23%.

A HELOC functions as a revolving line of credit, similar to a credit card, allowing homeowners to borrow funds as needed up to a predetermined limit during a “draw period.” HELOCs feature variable interest rates, fluctuating with market conditions, with national averages around 8.12% as of August 2025, though introductory rates can be lower, and maximum rates may reach 18%. After the draw period, a repayment period begins, where the borrower repays the outstanding balance, often with principal and interest payments.

Borrowing limits for both are typically based on the home’s appraised value and existing mortgage balance, often up to 80-95% of the home’s equity. The home serves as collateral, meaning failure to make payments could result in foreclosure. Borrowers should anticipate closing costs, including appraisal fees, title insurance, and other charges, similar to a mortgage.

Accessing Your Life Insurance Cash Value

Certain permanent life insurance policies, such as whole life or universal life, accumulate cash value over time, which policyholders can borrow against. This loan is taken from the policy’s accumulated cash value, not directly from the death benefit itself. However, any outstanding loan balance, including accrued interest, will reduce the death benefit paid to beneficiaries if the policyholder dies before repayment. Most insurers allow borrowing up to 90% of the policy’s cash value.

Interest accrues on these loans, with typical rates ranging from 5% to 8% as of late 2024 and early 2025, which can be fixed or variable. Repayment terms are flexible, allowing policyholders to repay at their own pace or not at all, though interest continues to accumulate. If the loan plus interest grows to exceed the cash value, the policy could lapse, leading to loss of coverage and potential tax consequences.

The loan proceeds are generally not considered taxable income by the IRS as long as the policy remains in force and the loan amount does not exceed the premiums paid into the policy. Should the policy lapse with an outstanding loan, the portion of the loan that exceeds total premiums paid may become taxable income. Term life insurance policies do not build cash value and cannot be used for this purpose.

Borrowing From Your Retirement Funds

Individuals may borrow from qualified retirement plans like 401(k)s and 403(b)s, though Individual Retirement Accounts (IRAs) generally do not permit loans. The maximum amount that can be borrowed is typically the lesser of $50,000 or 50% of the vested account balance. An exception allows borrowing up to $10,000, even if it exceeds 50% of a smaller balance.

Repayment is generally required within five years, with payments made at least quarterly, often through payroll deductions. The interest paid on these loans goes back into the borrower’s retirement account, not to an external lender. This means the interest effectively contributes to the growth of the retirement savings.

A significant risk arises if the loan is not repaid according to the terms, especially upon job separation. If the loan defaults, the outstanding balance is treated as a taxable distribution. This can result in the balance being subject to ordinary income tax, plus a 10% early withdrawal penalty if the borrower is under 59½. Defaulting on a 401(k) loan does not impact one’s credit score, as loans are not reported to credit bureaus.