Why the Federal Reserve’s interest rate hikes could make personal loans more attractive


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In June, the Federal Reserve did something it hadn’t done in years: it raised its benchmark interest rate by 0.75%. And then, in July, he did the same thing again.

The Fed intentionally raises interest rates in an effort to slow the pace of inflation. In recent months, the Americans have looted their savings and running up dozens of debts just to keep up with the rising cost of living. By raising interest rates, the Fed wants to make borrowing more expensive so that consumers start spending less, thereby reducing the gap between supply and demand that triggered this runaway inflation spurt in the first place.

Now, to be clear, the Fed does not directly set consumer borrowing rates. Rather, it oversees the federal funds rate, which is what banks charge each other for short-term borrowing. But when these costs increase, they tend to be passed on to consumers in the form of higher credit card interest rates, mortgage ratesand auto loan rates, to name a few examples.

If you need to borrow money, it’s important to do so in the most cost-effective way possible. And in light of recent interest rate hikes, you might want to look to a Personal loan for your borrowing needs for a few key reasons.

1. You can borrow at a more competitive rate

In a time when borrowing has become expensive, it’s important to find an option that pays you the least amount of interest possible. And in the battle of credit card Compared to personal loans, personal loans win big. Squeezing a lower interest rate on the amount you borrow could result in much more manageable monthly payments, not to mention savings over time.

2. You can lock in a fixed interest rate on your debt

The danger of borrowing money through a product like a credit card or HELOC (home equity line of credit) is that these products generally have variable interest rates. This means that your rate could increase over time, making your payments more expensive.

When you take out a personal loan, you get a fixed interest rate on your debt, so you don’t have to worry about that rate going up when you pay off the amount you owe. Instead, you’ll have the security of having fixed monthly payments.

How to get a good deal on a personal loan

The higher your credit score at the time you apply for a personal loan, the more competitive the interest rate you are likely to qualify for. If your credit score needs work and you can wait a while to borrow money, it’s worth trying to boost it.

At the same time, it’s a good idea to shop around with different lenders before signing on for a personal loan. You never know when a lender might step in with a more competitive rate than the others, so take some time to do some rate shopping.

That said, you don’t just want to focus on your loan interest rate. You should also pay attention to the fees or closing costs that you will be charged to finalize this loan.

At a time of rising interest rates, consumers need to be more careful when borrowing. A personal loan could be a smart way to borrow money in light of the Fed’s recent interest rate hikes, especially since they may be far from over.

The Ascent’s Best Personal Loans for 2022

Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.

We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts.Maurie Backmann has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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