Just last month, the Federal Reserve raised its target federal funds rate for the first time in three years. While the increase was small, up from near zero by a quarter of a percentage point, it lays the groundwork for more hikes before the end of the year. In fact, some economists expect the feds to raise rates very aggressively in the coming months. This has left many wondering how unsecured loan interest rates will be affected.
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How Rate Increases from the Fed can Impact Unsecured Loans
The federal funds rate is set by the Federal Reserve System, also known as the central bank. Although it’s not necessarily the same rate that consumers pay, the federal funds rate affects a lot of things; unsecured loans interest rates included.
While small changes like the recent quarter percent raise have little to no impact on the economy and household budgets, rate hikes have a cumulative effect. This means you can expect current interest rates on unsecured loans to change as rate hikes continue, as they’re expected to.
Fixed-rate vs. variable-rate loans
Most personal loans fall under the fixed-rate category. This means the rate of interest and any potential fees do not change over the course of the loan. Variable-rate loans change as market conditions do and are much more aligned with the federal funds rate.
Is it a good time to get an unsecured loan?
Already planning on applying for a loan in the coming months? Getting one now will save you from the increased unsecured loans interest rates expected in the near future. If you have a need now or anticipate needing some extra funds soon, it’s a good idea to take advantage of current interest rates before large changes are made to the current interest rates on unsecured loans.
When it comes to consolidating debt, a consolidation loan might be the best option for you.
How to get the most affordable unsecured loan given current unsecured loan interest rates
- Check your credit: Like most other loans, unsecured loans interest rates are influenced by your credit score and history. Before applying for a loan, we recommend building up your credit, and ensuring your credit report is error-free.
- Pay off debts: Lenders will also evaluate all your other debts when evaluating your loan application. To take advantage of the current interest rates on unsecured loans and get the lowest rate possible, pay down any debts you can before applying.
- Reduce loan amount and term: Unsecured loans interest rates can get steeper as the size of the loan increases. Furthermore, you’ll be paying more interest the longer the payment term. So, ask for the lowest possible loan amount that still takes care of your needs and has the shortest terms.
- Add an applicant: Adding an applicant or co-borrower can help lower interest rates, especially if the additional applicant has a better credit score than you do.
- Choose the right lender: Don’t just go with the first lender you find. Shop around and find the best, most affordable loan you can find. Turning to an expert loan advisor is invaluable to help you find the best rates and terms, especially in a rising rate environment.
Looking to take advantage of the current interest rates on unsecured loans before they’re expected to increase? We can help! Unsecured Funding Source is here to help you secure the right loan that fits your needs. Apply here today to find out if you qualify!