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The Federal Reserve and Personal Loan Interest Rates

woman reviewing financial document sitting on couch

We can’t always predict if the Federal Reserve will raise rates or how exactly we’ll be affected.  We do know that while personal loan rates are generally determined by the applicant’s credit history, if federal interest rates go up, the rates on personal loans may increase as well, according to this NerdWallet report.

Since personal loans typically offer a fixed rate, whatever rate you borrow money at today won’t be affected by interest fluctuations in the future. This means that you can lock in a rate and not worry about your interest payments changing with the Fed’s benchmark rate.

Reviewing federal funds rates

There are two primary interest rate-related factors that might make a personal loan appealing as a debt management strategy:

1. It May Be Less Expensive to Take Out a Personal Loan

Did you know that receiving a fixed rate personal loan for unexpected expenses such as vehicle repair or healthcare may be available to you? Or you might consider one for a much needed family vacation, or paying off a few bills.

Applying for a personal loan for your specific situation allows you to budget for monthly payments that shouldn’t change if the Fed rate goes up.

By locking in a fixed rate, you can at least give yourself some certainty about what you’ll be paying in the months or years to come.

2. Combining Your Debts Into One Loan

Perhaps you were recently unemployed, had unexpected medical expenses, or simply lost sight of your bills. Attempting to keep track of all your accounts can be difficult, and you may have higher interest debt. Regardless of how you got there, consolidating your debt with a personal loan could give you a more easily manageable payment and possibly save you money in interest.

Simplifying your financial life and lowering your overall interest rate could save you time and money going forward.

More Background on the Fed

It may be helpful to have a general understanding of how federal interest rates work.

If you were to ask an everyday person what’s happening with interest rates, they might say it’s because of “The Fed” or “The Federal Reserve System.”

According to the Board of Governors of the Federal Reserve System, the purpose of the Fed is to set monetary policy that stabilizes the U.S. economy and overall financial system.

 “The Fed” is responsible for 4 major categories:

  1. Conducting monetary policy such as influencing credit rates.
  2. Supervising and regulating banks and financial institutions.
  3. Maintaining stability in our financial system.
  4. Providing financial services to the U.S. government.

The “Fed funds rate” is the primary tool used by the Fed to control the interest rate banks charge each other, and therefore how likely they are to lend money to consumers or other businesses. It also impacts how high or low rates will be for borrowers.

Check Your Rate for a personal loan from Discover® with no impact to your credit score.