A viewer asked me how to use infinite banking if their home loan and student loans already have really low interest rates. It's a good question, because most of what gets said about policy loans is about paying off expensive debt. I answered it in a short Q&A on using infinite banking when your loans are already low interest.
My answer was that I wouldn't pay off low-rate mortgages or student loans if I didn't have to. A policy loan charges interest too. Using cash value to retire a cheap loan means swapping one interest bill for another, and you also shrink your cash value and death benefit while the policy loan is outstanding. The cash in your policy gets you a death benefit and some guaranteed growth. I'd rather make it do double or triple duty.
So I'd ask a different question first. What do you do with your extra cash flow once your emergency fund and your capital expense account are in place? If you've built up cash value, you have money available that doesn't have to go toward debt. That's a chance to look at cash-flowing assets, meaning things that pay you money regularly. The goal is a return higher than the policy loan rate. Then the income can cover the loan payments and, maybe, leave something extra.
Here's the example I gave about a car. Say it costs $500 a month, or you could pay $30,000 in cash. Over five years, $500 a month comes to $30,000. If you pay cash, the $30,000 buys you a five-year-old car at the end and nothing else. If you can find a cash-flowing asset that pays about $500 a month, you use that income for the car payment. When the car is paid off, you still own that cash-flowing asset, so you're in a better position. For the steps of financing a car through your policy, see buying your next car through your policy.
I'd be careful with this idea. Nothing guarantees that an asset will pay what you expected. If it falls short, the loan payment is still due and you cover the gap yourself. Past that, the policy loan doesn't come due on a schedule, so it's on you to set one. I'm a licensed insurance broker, not an investment advisor, so this is how I think about it and not a recommendation for you. Run the numbers with your own tax professional first.
There's also a case for paying a low-rate loan off. If the monthly payment keeps you up at night, or you don't have an asset in mind, the savings in peace of mind might be real. I just wouldn't use policy cash to do it only because the loan exists.
Before you borrow, write down the rate on your oldest loan, the policy loan rate, and the income your cash-flowing asset would have to produce to cover the difference.