Despite a move by the Federal Reserve to raise interest rates by 0.25% in December, the interest rate that consumers will pay for personal loans won’t fluctuate much, at least in the near term.
“A 25 basis point increase by the Fed isn’t a lot,” says Jeff Reeves, executive editor of InvestorPlace.com in Rockville, Maryland.
A basis point is one-hundredth of 1%.
In Bankrate’s national survey of interest rates for Jan. 13, 2016, the rate on personal loans didn’t budge. It remained at 11.3%, the same as the previous week.
For months, speculation has abounded that the Federal Reserve would get more aggressive with its interest rate strategy, but the increase in December is leading many to expect small, incremental increases in 2016, which won’t have a huge impact on interest rates on personal loans. That’s particularly true for consumers with the best credit.
If you’re considering a personal loan, look at the range of offers on Bankrate.com.
Interest rates could tick up by end of the year
While the Fed moves aren’t expected to be huge during the year, borrowers could see interest rates on personal loans tick up toward the end of the year and into 2017.
“The rising tide is going to lift all ships,” says Greg McBride, CFA, chief financial analyst at Bankrate.com. “If interest rates are going up, personal loans are not going to be immune. There will be a little bit of a lag, but you will end up paying more at the end of 2016.”
Even in an environment where the Fed continues to raise interest rates, the economy, risk profile and amount of money the consumer is borrowing is going to matter more than what the Fed is doing or thinking about doing.
That’s because with the economy on the mend, the unemployment picture improving and oil prices plummeting, consumers are in a better financial position, and lenders are more than willing to provide funding, says Reeves of InvestorPlace.com.
Consumers with the best credit scores are going to see a lot of competition for their business from lenders and, as a result, should shop around for the best rate.
Check out the personal loan rates at Bankrate.com.
Lock in the rate if you need the loan
With a hint of higher interest rates, many consumers may be thinking now is a good time to lock in the best rate on a personal loan, but McBride says rates shouldn’t be the driving factor.
“People get personal loans when their car breaks down. It’s event driven,” he says. “If the Fed raises rates 2 or maybe 3 times this year by the end of the year, the rate you pay could be half or three quarters of a percentage point higher than what you pay today.”