What Do Higher Interest Rates Mean for Loans

What Do Higher Interest Rates Mean for Loans?

The Federal Reserve enacted back-to-back 0.75% interest rate increases in June and July to help counteract inflation. As of mid-August, the benchmark interest rate range was 2.25%-2.50%. That higher baseline means that interest rates for consumer credit like personal loans, auto financing, mortgages, and credit cards are on the rise. The cost of borrowing money has gone up, but the strength of your credit history can help your chances of securing an affordable loan.

Interested in interest?

Interest is the percentage a lender charges to extend credit to borrowers. This rate can be fixed and stay the same for the repayment term, or it can be variable and fluctuate according to the market. The prime rate is the interest rate that banks offer to their most creditworthy customers, and it is also determined by the current market. The Wall Street Journal reports the prime rate, and — to illustrate the upward trend — it was 3.25% a year ago, 4.75% last month, and 5.50% the week of August 15, 2022.

Why this increase?

Inflation — the rising cost of goods and services — is driven by consumer demand and the amount of supply. When inflation spikes, as it has in 2022, the Fed increases interest rates to curtail spending and allow the market to catch up. It’s a balancing act. But with consumers already paying more for everyday essentials and now having to spend more for credit, the risk is that spending slows too much and creates a recession.

Finding a loan that works for you

Life’s expenses don’t just go away during a time of inflation and higher interest rates. People still need loans to cover large purchases, bills, travel, cars, etc. Choosing a fixed-rate personal loan is a smart way to go when interest rates get higher.

To secure the lowest rate available, make sure your credit history is up to date and error-free. You can review your credit report every 12 months for free from each of the three major credit bureaus at AnnualCreditReport.com to make sure it’s accurate and dispute any issues. You can also choose a secured loan that requires collateral for a more competitive rate. Auto loans are considered secured loans, as the vehicle serves as collateral. If you’re shopping for a car, for example, be sure to finance only what you need and shop around for the best rate rather than just considering a dealership’s funding options.

If you need a personal loan, debt consolidation loan, or auto loan, rely on Lendmark Financial. We’ll walk you through your interest and terms options and offer fast approvals with same-day funding. Apply online or visit your local branch today.