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.
BREAKING DOWN '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