Cheap Money

AAA

DEFINITION of 'Cheap Money'

A loan or credit with a low interest rate, or the setting of low interest rates by a central bank like the Federal Reserve. Cheap money is good for borrowers, but bad for investors, who will see the same low interest rates on investments like savings accounts, money market funds, CDs and bonds. Cheap money can have detrimental economic consequences as borrowers take on excessive leverage.

INVESTOPEDIA EXPLAINS 'Cheap Money'

When money is cheap, it is a good time for borrowers to take on new debt or consolidate existing debts. However, borrowing more than one can afford to repay was one of the primary catalysts of the 2008 recession.


Here are a few examples of cheap money:


-A credit card with a 0% introductory APR for 12 months


-A 30-year fixed-rate mortgage at 4% interest


-An auto loan at 0.5% interest

RELATED TERMS
  1. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  2. Federal Funds Rate

    The interest rate at which a depository institution lends funds ...
  3. Easy Money

    In the most literal sense, money that is easily acquired. Academically ...
  4. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
Related Articles
  1. Forces Behind Interest Rates
    Economics

    Forces Behind Interest Rates

  2. How The U.S. Government Formulates Monetary ...
    Personal Finance

    How The U.S. Government Formulates Monetary ...

  3. What Investors Should Know About Interest ...
    Investing Basics

    What Investors Should Know About Interest ...

  4. Student Loan Debt: Is Consolidation ...
    Retirement

    Student Loan Debt: Is Consolidation ...

comments powered by Disqus
Hot Definitions
  1. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  2. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  3. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  4. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  5. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  6. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
Trading Center