While the credit crunch is clearly dampening consumers’ borrowing power, the lending well hasn’t run completely dry. Lenders still want to lend, but borrowers will need to dig deeper to get the best rates.

The Federal Reserve probably plays the most visible role in influencing rates, as it orchestrates money supply. Contrary to popular belief though, when the Fed trims rates, the effects don’t necessarily trickle down to every credit and loan product.

Between September 2007 and April 2008, the Fed cut the federal funds rate 3.25 percentage points, from 5.25 percent to 2 percent. Yet over that time frame, the average 30-year fixed-rate mortgage actually rose, according to Bankrate data.

Rates on other loan products did fall, including those for home equity lines of credit, or HELOCs, auto loans and variable rate credit cards. Their rates are pegged to the prime rate, which moves in tandem with the federal funds rate.

Knowing what influences interest rates may help you negotiate a better deal the next time you need to borrow money.

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The skinny on mortgage rates
What impact rates

Fixed-rate mortgages are influenced by the current economy and investor expectations.

“Fixed-rate mortgages are pegged to long-term interest rates, like the 10-year Treasury note and are not connected to short-term interest rates controlled by the Fed,” says Greg McBride, Bankrate’s senior financial analyst.

Short-term rates do affect adjustable-rate mortgages, or ARMs, because the indexes to which they are pegged are shorter term in nature, says McBride.

“Adjustable rate mortgages are often pegged to the one-year Treasury or a short-term LIBOR index, either of which is more closely correlated with the short-term interest rates under the Fed’s control,” he says.

Risk-averse lenders reeling from record losses from the subprime mess are impacting mortgage rates, too. Lenders are requiring tougher underwriting standards on new mortgages.

Investors who buy mortgage-backed securities are demanding higher yields to compensate them for taking higher risks.

These factors have prevented mortgage rates from falling lower than they are today.

It’s tough to lend money for homes while housing values remain uncertain, says Bob Walters, chief economist at Livonia, Mich.-based Quicken Loans.

Highs and lows

“If you’re lending against something that you think continues to lose value, how do you make your (lending) rule when you make a loan in May and by July you’re upside down on that loan?” he says.

Over the past five years, 30-year fixed-rate mortgages have ranged from a low of 5.28 percent in June 2003 to a high of 6.93 percent in June 2006. In recent weeks, rates have been approaching those 2006 levels.

Fifteen-year fixed-rate mortgages over the past five years ranged from a low of 4.71 percent in June 2003 to a high of 6.57 percent in June 2006.

And 5/1 ARMS, for which Bankrate has data for two years, ranged from a low of 4.99 percent in February 2005 to a high of 6.67 percent in June 2007.

For information on the latest mortgage rates, see Bankrate’s mortgage survey.

How to get the best rate
Until the mortgage crises fully ebbs, lenders will likely continue to tighten their mortgage lending standards.

You’ll need proof of stable income, preferably a tenure of two or more years at the same employer, a FICO score of at least 720 score and a verifiable down payment — plus cash reserves, says Ritch Workman, president of the Florida Association of Mortgage Brokers.

“That’s our poster-child borrower,” he says. “They’re the ones being offered the best rates.”

With zero-down-payment loans going the way of the horse and buggy, expect to cough up more money at closing to qualify for the best rates — especially if you’re near the conforming loan limit for your area. (Conforming loan limits vary according to area, but are predominately $417,000. A conforming mortgage is one that is eligible for purchase or securitization by government-sponsored enterprises such as Fannie Mae and Freddie Mac.)

“It pays to strategize to either make a larger down payment or borrow less money so you can get that mortgage under that conforming loan limit and at a lower rate,” McBride says.

Another rate-reducing strategy is to pay discount points or an origination fee upfront. Both fees are expressed as a percentage of the loan amount, and both will decrease the interest rate of a mortgage, but will increase the amount of cash you need at closing.

On a $200,000 loan, a 1 percent origination fee (also called loan-processing fee) will mean $2,000 out-of-pocket at closing.

Origination fees may or may not be negotiable. Some lenders won’t write a loan without an origination fee, says Workman.

How much do discount points lower your mortgage rate? It depends on what’s going on in the mortgage market, but one point usually lowers the interest rate by one-eighth to three-eighths of a percentage point. General rule of thumb: One discount point equals a quarter-point rate reduction.

Paying points generally means reduced monthly payments and interest over the life of the loan, but you’ll need to consider how long you plan to stay in the home to see if the trade-off is worthwhile.

“If it takes more than 24 to 36 months to pay off the point, it’s typically not worth it financially because most Americans sell or refinance their home within five years,” Workman says.

The skinny on …

Home equity

What impact rates
Home equity loans are pegged to long-term interest rates like the 10-year Treasury notes, while home equity lines of credit, or HELOCs, have variable interest rates pegged to the prime rate. The prime rate moves in lock step with Fed interest rate changes.

With home equity loans, borrowers get money upfront in a lump sum at a fixed interest rate and make the same payment each month for the loan term.

HELOCs are lines of credit that allow the borrower to draw money periodically when needed. The interest rate can vary, depending on the prime rate, and the borrower may have the option to make interest-only payments over specific periods of time.

Interest rates for HELOCs are favorable now because Fed actions over the past year have driven down the prime rate.

However, lenders looking to avoid exposure from falling home prices and foreclosures have taken to freezing or reducing HELOCs in some areas and making home equity loans harder to get.

Home equity loan rates over the past five years ranged from 6.62 percent to 8.19 percent for $30,000 loans. Over the past year, the rate has averaged about 8 percent.

HELOC rates over the past five years have ranged from a low of 4 percent in August 2003 to a high of 8.25 percent in September 2007. Over the past year, they have averaged in the neighborhood of 6.8 percent.

Bankrate’s Interest Rate Roundup gives you the latest information on home equity loan and HELOC rates.

Know your credit profile and take action while interest rates are low.

Consumers with FICO scores of 720 or higher, low debt-to-income and low loan-to-value ratios, and high cash reserves are getting the best rates on HELOCs right now, according to Ritch Workman, president of the Florida Association of Mortgage Brokers.

To get the best rate, it pays to comparison shop. Compare home equity loan rates and HELOC rates offered in your area on Bankrate.com.

Highs and lows
Home equity loan rates over the past five years ranged from 6.62 percent to 8.19 percent for $30,000 loans. Over the past year, the rate has averaged about 8 percent.

HELOC rates over the past five years have ranged from a low of 4 percent in August 2003 to a high of 8.25 percent in September 2007. Over the past year, they have averaged in the neighborhood of 6.8 percent.

Bankrate’s Interest Rate Roundup gives you the latest information on home equity loan and HELOC rates.

Know your credit profile and take action while interest rates are low.

Consumers with FICO scores of 720 or higher, low debt-to-income and low loan-to-value ratios, and high cash reserves are getting the best rates on HELOCs right now, according to Ritch Workman, president of the Florida Association of Mortgage Brokers.

To get the best rate, it pays to comparison shop. Compare home equity loan rates and HELOC rates offered in your area on Bankrate.com.

How to get the best rate
Know your credit profile and take action while interest rates are low.

Consumers with FICO scores of 720 or higher, low debt-to-income and low loan-to-value ratios, and high cash reserves are getting the best rates on HELOCs right now, according to Ritch Workman, president of the Florida Association of Mortgage Brokers.

To get the best rate, it pays to comparison shop. Compare home equity loan rates and HELOC rates offered in your area on Bankrate.com.

The skinny on credit cards

What impact rates

Variable rate credit cards are pegged to the prime rate and rise and fall with movements of the Federal Reserve.

Fixed-rate cards are a bit of a misnomer because the interest rate is not really fixed. Rates can change at the card issuer’s discretion with as little as a 15-day notice.

However, credit card companies are quicker to react when rates are rising.

“Cardholders are more likely to see fixed rates increase when interest rates rise than they are to see fixed rates decrease when interest rates are falling,” says Greg McBride, Bankrate’s senior financial analyst.

Interest rates on gold and platinum cards are often lower, and have higher credit limits and annual fees.

They may come with added perks such as rental car insurance, travel points and cash-back rewards, but consumers generally need higher credit scores to qualify for them.

In the mid-1980s, when credit card use first became widely adopted by consumers, standard fixed-rate cards carried an 18 percent-plus rate, and this trend persisted for many years, peaking in July 1991 at 19 percent. Rates finally began dropping significantly only about 10 years ago, when they vacillated between 14 percent and 16 percent. Over the past year, they averaged around 13 percent.

Gold and platinum cards generally offer lower rates to qualified customers with higher credit scores. Over the past three years, interest rates on gold fixed cards hovered in the 11 percent to12 percent range. Platinum fixed-rate cards ranged from a low of 9.8 percent in January 2006 to a high of 10.79 percent in February 2008.

Bankrate’s Interest Rate Roundup gives you the latest information on credit card rates.

Card issuers are raising the bar higher when it comes to who gets the best rates.

“The whole spectrum is shifting, whereas in the past, card issuers might go after any consumer that has a credit score of 600 or better; today that’s shifted to 650 or better,” says Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research.

Consumers hunting for good deals should look for banks that haven’t been stung by subprime lending and are still actively going after new cardholders.

“Those are where the real deals can be found when you’re shopping around for a credit card,” says Cundiff.

Try to correct anything on your report that can be perceived as a potential blemish. You can order a free copy of your report from each of the three major credit-reporting agencies once every 12 months.

Consumer sites that compare credit card offers can also save you money in the long run.

Bankrate provides credit card information based on individual issuers, card type and credit type.

Highs and lows
In the mid-1980s, when credit card use first became widely adopted by consumers, standard fixed-rate cards carried an 18 percent-plus rate, and this trend persisted for many years, peaking in July 1991 at 19 percent. Rates finally began dropping significantly only about 10 years ago, when they vacillated between 14 percent and 16 percent. Over the past year, they averaged around 13 percent.

Gold and platinum cards generally offer lower rates to qualified customers with higher credit scores. Over the past three years, interest rates on gold fixed cards hovered in the 11 percent to12 percent range. Platinum fixed-rate cards ranged from a low of 9.8 percent in January 2006 to a high of 10.79 percent in February 2008.

Bankrate’s Interest Rate Roundup gives you the latest information on credit card rates.

How to get the best rate
Card issuers are raising the bar higher when it comes to who gets the best rates.

“The whole spectrum is shifting, whereas in the past, card issuers might go after any consumer that has a credit score of 600 or better; today that’s shifted to 650 or better,” says Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research.

Consumers hunting for good deals should look for banks that haven’t been stung by subprime lending and are still actively going after new cardholders.

“Those are where the real deals can be found when you’re shopping around for a credit card,” says Cundiff.

Try to correct anything on your report that can be perceived as a potential blemish. You can order a free copy of your report from each of the three major credit-reporting agencies once every 12 months.

Consumer sites that compare credit card offers can also save you money in the long run.

Bankrate provides credit card information based on individual issuers, card type and credit type.
The skinny on auto loan rates

What impact rates

Interest rates on auto loans can be pegged to either the prime rate or yields on Treasury securities. Rates are currently at their lowest in many years, although traditionally there is not a lot of movement.

“The average new car loan rate over the last seven or eight years has fluctuated between 7 percent and 9 percent, despite a Fed funds rate that has ranged from a low of 1 percent to a high of 6.5 percent,” says Greg McBride, Bankrate’s senior financial analyst.

Lenders use risk-based pricing. So, as is the case with other lending products, customers with the highest credit scores will qualify for the lowest interest rates.

Bankrate’s data on auto loan rates go back 10 years. Rates peaked in October 2000, and reached lows in recent months.

For example, the 36-month new car rate ranged from a high of 9.71 percent in October 2000 to a low of 6.89 percent in May 2008. Rates for 48-month and 60-month new car rates followed the same pattern, only slightly higher.

Used car rates run higher still. The 36-month used car rate ranged from a high of 10.82 percent in October 2000 to a low of 7.73 percent in July 2008.

Bankrate’s Interest Rate Roundup gives you the latest information on auto loan rates.

Get a copy of your credit report and correct any inaccurate information. Check car-buying guides and Web sites and get a price range for the vehicle you’re interested in before you step foot on the dealer’s lot. Compare finance offers from various lenders, not just the manufacturer’s finance arm at the dealership.

Despite the credit crunch, slumping auto sales have prompted some auto manufacturers to offer low-interest or zero-percent-interest financing on select models to qualified customers.

You’ll need excellent credit to qualify for these deals and may need to pay the loan off in as little as 36 months.

If you have bad credit, you’re going to run into two possible scenarios. “Some lenders just won’t give you credit at all, and those that do are going to charge you a higher interest rate,” McBride says.

For those with less-than-stellar credit, there is another option to consider — credit unions. For the most part, these financial institutions use the same risk-based analysis that other lenders use, i.e., FICO scores, but with a twist.

“We don’t make loan decisions based solely on FICO scores,” says Phil Greer, senior vice president of loan administration at the Raleigh, N.C.-based State Employees Credit Union.

Greer says the credit union’s loan officers analyze members’ credit reports to find out if derogatory information reflects just a bump in the road.

“If we can determine that the issues that caused the problem with your credit report were due to things like illness or divorce, and that’s no longer hanging over your head, then we probably think you’re in that percentile that is probably going to pay us rather than default on the loan,” he says.

Highs and lows
Bankrate’s data on auto loan rates go back 10 years. Rates peaked in October 2000, and reached lows in recent months.

For example, the 36-month new car rate ranged from a high of 9.71 percent in October 2000 to a low of 6.89 percent in May 2008. Rates for 48-month and 60-month new car rates followed the same pattern, only slightly higher.

Used car rates run higher still. The 36-month used car rate ranged from a high of 10.82 percent in October 2000 to a low of 7.73 percent in July 2008.

Bankrate’s Interest Rate Roundup gives you the latest information on auto loan rates.

How to get the best rate
Get a copy of your credit report and correct any inaccurate information. Check car-buying guides and Web sites and get a price range for the vehicle you’re interested in before you step foot on the dealer’s lot. Compare finance offers from various lenders, not just the manufacturer’s finance arm at the dealership.

Despite the credit crunch, slumping auto sales have prompted some auto manufacturers to offer low-interest or zero-percent-interest financing on select models to qualified customers.

You’ll need excellent credit to qualify for these deals and may need to pay the loan off in as little as 36 months.

If you have bad credit, you’re going to run into two possible scenarios. “Some lenders just won’t give you credit at all, and those that do are going to charge you a higher interest rate,” McBride says.

For those with less-than-stellar credit, there is another option to consider — credit unions. For the most part, these financial institutions use the same risk-based analysis that other lenders use, i.e., FICO scores, but with a twist.

“We don’t make loan decisions based solely on FICO scores,” says Phil Greer, senior vice president of loan administration at the Raleigh, N.C.-based State Employees Credit Union.

Greer says the credit union’s loan officers analyze members’ credit reports to find out if derogatory information reflects just a bump in the road.

“If we can determine that the issues that caused the problem with your credit report were due to things like illness or divorce, and that’s no longer hanging over your head, then we probably think you’re in that percentile that is probably going to pay us rather than default on the loan,” he says.

The skinny on student loans

What impact rates
The federal government sets the interest rates on federal student loans such as the Stafford and PLUS loans.

The College Cost Reduction and Access Act, signed into law in September 2007, changed the interest rates on subsidized Stafford Loans from 6.8 percent to 6 percent, starting with loans disbursed on or after July 1, 2008. Next year the rate goes down to 5.6 percent.

Unsubsidized Stafford loans remain unchanged at 6.8 percent.

The interest rate for federal Perkins Loans for both undergrads and graduates is 5 percent.

Private student loan interest rates are variable and based on either the LIBOR index or the prime rate.

“In our case, they are based on LIBOR and can change each month based on the way the LIBOR moves,” says Patricia Nash Christel, director of communications at Sallie Mae in Reston, Va.

Highs and lows
The interest rates on Stafford loans disbursed between July 1, 1998, and June 30, 2006, are variable and based on the 91-day Treasury bill rate plus between 1.7 percent and 2.3 percent, depending on whether the student is still in school or in repayment status.

Going forward, interest rates on undergraduate subsidized Stafford loans will be fixed based on a sliding scale, depending on the year in which they are disbursed.

Beginning July 1, 2008, the interest rate is 6 percent. In July 2009, the interest rate will be 5.6 percent; in 2010, 4.5 percent; in 2011, 3.4 percent; in 2012, 6.8 percent.

The interest rate on undergraduate subsidized Stafford loans disbursed between July 1, 2006, and June 30, 2008, is fixed at 6.8 percent.

For graduate students, the interest rate for both subsidized and unsubsidized Stafford loans is 6.8 percent.

The interest rate on Stafford loans disbursed between July 1, 1998, and June 30, 2006, is variable but can’t exceed 8.25 percent.

PLUS loans disbursed after July 1, 2006, are fixed at 8.5 percent. PLUS loans disbursed between July 1, 1998, and June 30, 2006, are variable, but capped at 9 percent.

These figures come from Sallie Mae.

How to get the best rate
Federally backed, subsidized student loans are available at attractive fixed interest rates to any qualified college student based on need and regardless of credit score.

Prospective students should fill out a Free Application for Federal Student Aid, or FAFSA. The filing season begins in January, and it’s in your best interests to file as early as possible. Early filers often qualify for the maximum amount of grants and low interest loans, according to Christel.

If you need a private loan and your credit is iffy, get a copy of your credit report before applying for a loan to make sure there are no surprises. Then get several quotes as quickly as possible.

“To the extent that you are shopping around for private loans, we advise that you shop within a short period of time,” says Martha Holler, a SallieMae spokeswoman.

It’s best to shop loans within a 10-day period so that the credit bureaus don’t assume you are looking for multiple loans and adversely lower your credit score because there are too many inquiries, she says.

The credit crunch has caused many lenders in the private market to stop offering loans. If you’re seeking help from parents, see if Mom and Dad might be willing to apply for a PLUS loan, which offers fixed rates.

The skinny on personal loans

What impact rates

Interest rates for personal loans are comparable to interest rates for credit cards, which are loosely pegged to the prime rate.

“In many cases they’re sort of substitutes for each other,” says Greg McBride, senior financial analyst at Bankrate “That’s another product that really doesn’t move around a whole lot. It’s a higher risk product and it’s not as sensitive to interest rate changes.”

Financial institutions will also base personal loan rates on other factors unrelated to such indexes as the prime rate.

“By and large, we set the rates to be competitive in the marketplace,” says Phil Greer, senior vice president of loan administration at the Raleigh, N.C.-based State Employees Credit Union. He adds that the credit union also takes into account a number of other factors, including its own financial picture.

Highs and lows
Personal loan interest rates, for which Bankrate has data for 10 years, is based on an assumption of a $3,000 loan repaid over 24 months.

Interest rates ranged from a low of 13.72 percent in July 2008 to a high of 15.43 percent back in January 1998.

How to get the best rate
Shop several lenders. Sooner is better than later because personal loan rates are lower than they’ve been in several years.

Credit unions are a viable alternative to traditional lenders. They generally offer favorable rates on loans and credit cards to their members. (Customers are actually dividend-eligible shareholders and are referred to as members rather than account holders.)

Credit unions charge an average of 10.64 percent nationally for a 36-month fixed-rate personal loan, significantly lower than the national average for other types of financial institutions, according to data reported in June by the National Credit Union Administration.

They tend to look at a member’s overall financial situation and relationship with the credit union rather than the FICO score alone.

You may also be able to secure a lower interest rate for a personal loan from a traditional lender by using collateral, such as home equity or a free-and-clear car title, according to Bankrate’s Greg McBride.