What does the Fed’s fourth rate hike of 0.75% mean for personal loan borrowers?

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Borrowing options that were once affordable can quickly become even more expensive.

Key Point

  • The Federal Reserve has raised interest rates another 0.75% to keep inflation down.
  • This tends to drive up the cost of various borrowing products.
  • You can save on personal loans by looking at interest rates and improving your credit score.

Inflation has been skyrocketing for months, forcing many consumers to rip off their savings and pile on tons of money. credit card Debt just to cover basic bills. The Federal Reserve is trying to slow the pace of inflation. And it’s doing so by raising interest rates.

Let me be clear here: the Fed does not directly set consumer borrowing rates. Rather, we monitor the federal funds rate that banks charge each other for short-term borrowing.

But when the Federal Reserve raises the base rate, consumers borrow more uniformly. So if you are considering takeout, personal loan In the short term, you may get stuck at a higher rate than you would like.

prepare to pay more

The great thing about personal loans is that you can borrow money according to your purpose. Need your roof repaired? A personal loan can be used to cover that repair. Want to remodel your kitchen? Personal loans make that possible. A personal loan can also be used to start a business or purchase the equipment needed to work from home. The options are truly endless.

Personal loans also tend to offer more competitive interest rates than other borrowing products such as credit cards. So it’s easy to see why it appeals to so many consumers.

However, given the recent Fed rate hikes, consumers should prepare for higher interest rates on their personal loans. mortgage Or auto loan.

The silver lining to all these rate hikes is that some banks are finally starting to pay decent rates. savings account and a certificate of deposit. However, while this helps those who have money to save, those who need to borrow have a harder time.

How to lower interest rates on personal loans

If you anticipate needing a personal loan in the coming weeks or months, there are a few steps you can take to lower your borrowing costs, even considering recent interest rate hikes.For one, you can work on boosting your credit score.

Personal loans are unsecured and therefore not tied to a specific asset. As such, the interest rate assigned to one of these loans is primarily dependent on creditworthiness.

If your credit score is fair or good but not very good, check your credit report for errors. Correcting mistakes that put you at a disadvantage can help improve your credit score pretty quickly.

Another way to get lower personal loan interest rates? Shop around. Interest rates can rise across the board, but ultimately, each lender sets its own rate. So if you take the time to compare offers, you may find yourself saving a small amount of money even during a time when borrowing was relatively high.

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