Should You Borrow Money in a Recession?

When facing a potential recession, financial decisions take on a new weight. After all, financial policy may change during a recession, which can leave consumers with questions. For example, if the Federal Reserve lowers interest rates, should you borrow money during a recession?

While lower recession interest rates might sound appealing, there are lots of things to consider before borrowing money during a recession.

Understanding Recessions

In the U.S., the National Bureau of Economic Research defines a recession as more than a few months of significant decline across different sectors of the economy. We see this decline in changes to the gross domestic product, unemployment rates, and incomes.

How Does Financial Policy Change During a Recession?

The Federal Reserve, which controls monetary policy in the U.S., often takes steps to attempt to curb unemployment and stabilize prices during a recession.

Downsides to Borrowing Money During a Recession

Difficult financial conditions like furloughs or layoffs could make it more difficult to make monthly payments on loans.

It may be harder to find a bank willing to lend during a recession

Lower interest rates may mean that a bank or lending institution isn’t able to make as much money from loans. This may make lending institutions more hesitant.

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