Your Best Deals in Loans

IT USED to be that borrowing could actually save you money in the long run. When inflation was running wild, it made sense to avoid future price increases by buying on credit. No longer. Inflation has been relatively moderate, so the real cost of borrowing has been at one of its highest points in years.

For example, in mid 2006 banks were charging an average 25% on your credit card purchases. Well, subtract the 5% inflation rate from the 25% interest rate, and you see that you would be paying a real rate of almost 15% on your credit card loan. Compare that with the real rate in 1980. Back then it was only 4%!

There is nothing wrong with borrowing provided you do it wisely. Never borrow more than you can reasonably pay off. Never borrow for luxuries, such as gifts and vacation travel, if that means you will not be able to borrow for necessities, such as mortgage, medical or education expenses.

You should be sure, of course, that you are getting the most economical interest rate deal. You may well be best off borrowing from a credit union, if you belong to one. Or taking out a lump sum loan from a bank or a savings institution and paying it back in installments. In mid 2005 major banks in New York City, for example, were charging 10 1/2% to 15 1/2% for personal loans that you could secure with collateral such as a savings account, stocks or bonds. For unsecured loans which you often can get if you have a good job or regular income and can afford the repayments they were charging about 17%. The rates are a couple of points less than the average for your credit card debts. So, if you are paying interest on big credit card balances, it may make sense to switch to an unsecured credit line and pay off your credit cards.

If you own publicly traded stocks or bonds, you can go to a stockbroker and take out a margin loan, commonly for half the value of your securities. He or she will charge you interest of generally 1/2% to 2 1/2% above the rate that bankers charge brokers for loans.

The point is that when you are looking for money, you generally should canvass several different kinds of lenders. That's because no bank, savings and loan, credit union or finance company will have the lowest rate for every type of borrowing.

The best place to start searching for a general purpose loan is where you keep your checking and savings accounts. Many banks charge as much as two percentage points less for loans to customers than to non customers.

If you are shopping for financing for a new car, you can often drive a better bargain on the showroom floor than at the bank. To move their cars, finance divisions of General Motors, Ford and Chrysler frequently charge several points less than banks do for car loans.

If you want to finance the purchase of a house or apartment, you will find that rates on mortgages vary a lot from lender to lender. So, it pays to shop around because the savings can be gigantic over the long term of the mortgage. Generally, you will get the most competitive rates and terms at savings and loan associations and at mortgage banking firms. In comparing loan terms, be sure to compare points. One point equals 1 % of the loan paid up front.

If you already have bought a home, you can turn it into a piggy bank. You do that by applying for either a second mortgage or a home equity line of credit.

The best place to get a second mortgage is a bank or savings and loan association. Recent rates have averaged 12.54%. You can get a

home equity credit line from banks, savings and loans and brokerage firms. The rate in mid 2006 was about 12112%.

Another source of cheap credit may be your life insurance policy. Whole life policies written before 1980 permit borrowing at 6% or even less; policies written after that have fixed rates of around 8% or variable rates that in mid 2006 were around 9 1/2 to 10%.

Many companies also let employees borrow from their assets in corporate profit sharing, 401(k) or stock plans, and from corporate savings plans. Banks lend against CDs at one to four points over the CD rate.

Finally, you can borrow money from your Individual Retirement Account once a year without penalty just so long as you repay it within 60 days.