Why You Should Apply For A Personal Loan Before Interest Rates Rise

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Federal Reserve Chairman Jerome Powell has indicated that he wants to move a little faster on raising interest rates at the next Federal Reserve Committee meeting on May 3-4. Speaking to an International Monetary Fund panel, Powell reportedly said a 50 basis point hike (a 0.5% increase) is on the table for that meeting, according to CNBC.

The Federal Reserve Committee meeting that took place on March 16, 2022 resulted in an increase in the target interest rate varies between 0.25% and 0.5%. This decision was born out of concerns about the high inflation rate and aims to bring the inflation rate down to 2% in the long term.

When the Federal Reserve raises interest rates, all interest rates are affected. This means mortgage, credit card and personal loan rates will likely rise due to the Fed’s actions.

So if you’re thinking of taking out a personal loan for home renovations, a much-needed car repair, or even to consolidate debt, now might be the time to submit your application before interest rates rise.

When you take out a personal loan (or any other form of credit), you must repay the loan amount in fixed, equal monthly installments over an agreed term (called the loan term). In addition to repaying the principal, you will also pay interest each month.

Each lender offers their own APR range, but these ranges can always be influenced by interest rate hikes made by the Fed. The higher your interest rate, the more it will cost you to take out a loan. Of course, the goal is to borrow money in the most affordable way possible so that you can save on those interest charges over time.

Right now, LightStream Personal Loans offer the lowest advertised interest rate on a personal loan, but of course the interest rate you receive will depend on various factors, including your credit score.

LightStream Personal Loans

  • Annual Percentage Rate (APR)

    3.49% to 19.99%* when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, renovation, car financing, medical expenses, marriage and more

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Compare offers to find the best loan

When looking for a personal loan, it can be helpful to compare multiple offers to help you determine the best interest rate and payment terms for your needs. With this nifty comparison tool, all you need to do is answer a few questions for Even Financial to determine the best deals available. The service is free, secure and does not affect your credit score.

This tool is provided and powered by Even Financial, a search and comparison engine that connects you with third-party lenders. Any information you provide is given directly to Even Financial and it may use that information in accordance with its own Privacy policies and Terms of use. By submitting your information, you agree to receive emails from Even. Select does not control and is not responsible for the policies or practices of third parties, and Select does not have access to the data you provide. Select may earn an affiliate commission on partner offers in the Even Financial tool. The commission does not influence the selection in the order of the offers.

How to get a low interest rate on a personal loan

If you don’t think you can get the personal loan you want before interest rates go up, there are still a few things you can do to save the most money when you take out the loan.

Start by working on improve your credit score. Lenders use it to determine your creditworthiness and the interest rate you should be charged. Some lenders will continue to approve you if you have bad credit, but keep in mind that you will still be subject to higher interest rates if your credit is less than ideal. Generally, the higher your credit score, the lower your interest rate will be. Improving your credit score makes you more likely to be approved for lower rates in the lender’s range.

Paying your bills on time is the most important thing you can do to increase your score. FICO and VantageScore, which are two of the main credit scoring models, both consider payment history to be the most influential factor in determining a person’s credit score (it accounts for 35% of your credit score). For lenders, a person’s ability to meet credit card, utility, student loan, mortgage and medical debt payments indicates that they are able to take out a loan and to repay it.

Next, you should try to lower your credit utilization rate. Your credit utilization rate is the total balance on your credit card divided by the total amount of your available credit. So if you have a limit of $5,000 and you have a balance of $2,500, your credit utilization rate is 50%. Experts generally recommend keeping your usage below 30%, and below 10% is even better. You can lower this rate by paying off your balance or asking your credit card issuer to increase your credit limit.

Another way to try to reduce the amount you pay in interest charges is to sign up for autopay to make payments on your loan. Some lenders actually offer a small percentage APR reduction to borrowers who use this method. LightStream Personal Loans, Marcus by Goldman Sachs Personal Loans and SoFi Personal Loans are just a few lenders that offer a 0.25% interest rate reduction for using autopay.

Marcus by Goldman Sachs Personal Loans

  • Annual Percentage Rate (APR)

    6.99% to 19.99% APR when you sign up for autopay

  • Purpose of the loan

    Debt consolidation, home improvement, wedding, moving and moving or vacation

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

SoFi Personal Loans

  • Annual Percentage Rate (APR)

    5.74% to 21.28% when you sign up for autopay

  • Purpose of the loan

    Debt consolidation/refinance, home improvement, relocation assistance or medical expenses

  • Loan amounts

  • terms

  • Credit needed

  • Assembly costs

  • Prepayment penalty

  • Late charge

Plus, another benefit of using autopay is that you never have to worry about accidentally forgetting to make a payment a month. So not only can it help make your personal loan a little more affordable, but it can also help keep your credit score intact.

At the end of the line

If you’ve been considering applying for a personal loan, now may be the time to act, as interest rates could rise in May. If you take out a large loan, having a lower interest rate could save you thousands of dollars over the life of a loan.

But if you’re not ready to take out a personal loan to cover a big expense, just work on improving your credit score and make sure you sign up for autopay when you take your loan. This way you can save as much as possible on interest charges.

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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.

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