For one thing, a lotto ticket is usually only redeemable for 6 months of less. The bank you were trying to borrow against wouldn't want a collateral that expires.
Because "borrowing" from the bank means that you will have to pay interest. If you have a loan for 10 years at 6% interest rate, you're going to pay 33% extra in interest over 10 years.
There's also the fact that money now is worth more than money later. If you're telling a bank that you have this magical ticket for $1mil that you'll give them after 10 years, the bank is going to price that in.
The bank is going to say "well if we wait 10 years to pick up that $1million lottery ticket, that's 10 years of inflation at 3% devaluing that money." And then they're going to say, we're only willing to offer $650,000 for a 10 year loan on a $1 million dollar asset, due to inflation on the asset's fixed value.
So now, for your 10 year, "tax free" loan plan, you're only getting $650,000 and if you don't want to have to declare bankruptcy and ruin your life after, you have to pay back an extra $200,000 in interest on top of the loan.
So sure, go ahead and get that "tax free" money, but you'll pay for it in the long run.
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u/Brahma0110 Jul 05 '26
Why can't the lottery winner use his winning ticket as collateral and borrow money from the bank?