Structured vs. non-structured loans: Which is right for you?

For most people, borrowing money is a fact of life. At some point or another, most of us need or want to make a large purchase and must borrow money to do so.

When you borrow from someone else – usually a bank or other lending institution – you must make structured payments on a timely basis until the entire loan, plus interest, is repaid. If you’re late with a payment or miss a payment, you risk affecting your credit rating. And, if you find yourself in a situation where you’re unable to make the payments, the lending institution may reclaim the purchase you made with the loan.

When you borrow from yourself, you’re borrowing money against your life insurance policy. Since you’re lending yourself money, you don’t have to stick to a structured repayment schedule. You have to pay at least the interest, but the principal repayment is at your discretion. However, should you die before the loan is repaid in its entirety, your beneficiaries will receive less than they expected.

So, which is the better option; a structured or a non-structured loan?

The key difference is in who has the control. With a structured loan, the lending institution is in control but with a non-structured loan, you’re in control .This difference is important if, for example, you work on commission or on contract and don’t have a steady cash flow. With a non-structured loan, you make payments when you can and don’t need to worry about them when you can’t. Even with a steady cash flow type of job, a non-structured loan means one less worry should you lose that job.

The fact that your beneficiaries would receive less than expected should the non-structured loan not be fully repaid is inconsequential. Because, should you not fully repay a structured loan before you die, the lending institution takes its money out of your estate anyway.

The one downside to a non-structured loan is that without scheduled payments, you may be less motivated to repay yourself. But the flexibility and freedom that comes with having control over your money outweighs this drawback. And the key is about being in control of your own money.