Interest rates have skyrocketed in the past year, with the Federal Reserve raising rates a record-breaking seven times in 2022 with the aim of cooling off the inflated economy.

As rates have increased, so has the cost of borrowing. According to Bankrate’s national lender survey, personal loan rates have shot up to an average of 10.72 percent and HELOC rates are edging up to 8 percent, with the average sitting at 7.83 percent. Experts agree that the Fed is poised to raise rates again, further tightening the strain on borrowers’ wallets.

Certain borrowers continue to feel sting of higher rates

Individuals locked into fixed rate mortgages and loans are unaffected by the Federal Reserve’s behavior, as the interest rate is fixed (it remains the same from origination to pay-off). It’s new borrowers or those who carry variable rate loans that have been feeling the sting of rising rates.

On Feb. 1, 2023, the Fed raised rates by another quarter of a percentage point, the smallest since March 2022. Each time rates increase, consumer lending products like Home Equity Lines of Credit (HELOCs), personal loans, credit cards and home equity loans feel the heat of rising costs and increase with every hike.

Home equity products more likely to be impacted

Home equity loans and home equity lines of credit (HELOCs) are more sensitive to rising rates, since variable rate loans, which are affected by economic conditions, are more common than with personal loans.

While some lenders offer fixed rate products, variable-rate home equity products are more common. The prime rate is set by financial institutions and is sensitive to shifts in the federal funds rate.

Most personal loans are fixed; however, there are lenders that offer variable rate loans. Much like home equity products, interest rates on variable rate personal loans are impacted by the federal funds rate and will ebb and flow with market fluctuations.

Experts predict another interest rate increase

Even though the most recent increase was significantly smaller and could signal a turning point in the economy cooling off, experts still agree that more rate hikes are on the way. Oliver Rust, head of product at Truflation estimates that the Fed will continue to increase rates in March.

“My guess is 50 basis points with the intention to cool inflation over the long term, ” he says. “Assuming another increase in the next meeting, this will have a particularly long-term cooling effect on property and outstanding home loans, which in turn will impact spending behavior.”

Rates on key lending products are set to increase even more. Officials hope this will curb consumer appetite and will eventually aid in the Fed pressing the brakes. While this may do good for the future economy, borrowers with variable rate loans are likely feeling an increased strain on their wallets every time rates are hiked.

Rates may come down next year

As a potential ray of light at the end of a multiple year-long tunnel, Rust says that rates may start to come down by the end of the year should inflation start to cool after a probable rate hike in May. “It is likely that the Fed will increase interest rates again in the meeting after March in early May, and then will hold if inflation starts to come down, ” says Rust. “If it does, then assume we will see interest rates starting to come down toward the end of the year.”

Is right now a good time to borrow a loan?

It may not seem like the ideal time to take out more debt, and for some consumers, that would be a smart move. However, those with excellent credit, a low debt-to-income ratio and a healthy financial history are likely to qualify for low rates and competitive terms.

Rust asserts that this also depends on the borrower’s appetite for risk. “Whether people remortgage, take out a loan or look for a second job to find that extra cash flow, the answer is dependent more on personal circumstances than interest rates.”

What to do before applying for a loan

Borrowers need to consider their financial situation holistically. Before applying for a personal loan or tapping into your equity, it’s imperative that you calculate how much you’ll be paying in interest and whether that fits into the monthly budget.

Keeping in mind that rates may decrease in 2023, think about whether you need the cash immediately or if you can wait. If you can put it off for a few months, bolster up your savings to avoid taking out a loan or wait until rates potentially cool off to save money in interest.