Reloading

Reloading

A term lenders commonly use to refer to the habits of borrowers taking out loans to repay the balance on other loans. Often reloading is done to take advantage of lower interest rates offered by other loans, and potential tax benefits.

Notes:

For example, let's say you have a large outstanding credit-card balance and are paying a high rate of interest (20%), but due to recent financial difficulty, you can keep up only the interest payments as the principal keeps building. So, you take out a home-equity loan to pay off your credit cards. The benefit of taking out the home-equity loan is that the interest rate is lower and also tax deductible. However, even though this may seen like a quick and easy solution to your credit problems, it is very easy to fall into a perpetual cycle of spending and borrowing, causing you to sink deeper into debt.

See also: Credit Card, Home-Equity Loan, Interest, Loands, Tax Liability