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, Americans have plundered their savings and racked up dozens of debts just to meet 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 those costs rise, they tend to be passed on to consumers in the form of higher credit card interest rates, mortgage rates, and 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
At a time when borrowing has become expensive, it’s important to find an option that allows you to pay as little interest as possible. And in the battle of credit cards versus 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 tend to come with 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 likely you are to qualify for a competitive interest rate. 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.
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