{"id":2866,"date":"2025-09-18T17:53:30","date_gmt":"2025-09-18T17:53:30","guid":{"rendered":"http:\/\/ft365.org\/index.php\/2025\/09\/18\/how-the-federal-reserve-impacts-personal-loans-bankrate\/"},"modified":"2025-09-18T17:53:30","modified_gmt":"2025-09-18T17:53:30","slug":"how-the-federal-reserve-impacts-personal-loans-bankrate","status":"publish","type":"post","link":"http:\/\/ft365.org\/index.php\/2025\/09\/18\/how-the-federal-reserve-impacts-personal-loans-bankrate\/","title":{"rendered":"How The Federal Reserve Impacts Personal Loans | Bankrate"},"content":{"rendered":"
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Key takeaways<\/span> <\/span> <\/h2>\n
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  • The federal funds rate impacts how expensive it is for lenders to loan money, so consumer loan rates typically change when the federal funds rate changes. <\/li>\n
  • During the Federal Open Market Committee\u2019s July meeting, the regulatory body announced it would hold the federal funds target rate steady. <\/li>\n
  • Current personal loan rate trends and the FOMC\u2019s decision to hold rates steady both suggest there won\u2019t be a major drop in personal loan interest rates in the near future. <\/li>\n<\/ul><\/div>\n

    The fed funds benchmark rate impacts how much it costs for lenders to loan money, so it influences rates on consumer loans \u2014 including personal loans. The Federal Open Market Committee dropped the target rate to 4-4.25 percent in September 2025. Even so, rates are likely going to remain high for a while<\/p>\n

    \u201cFor consumers, the message remains clear: High interest rates aren\u2019t going anywhere, and the U.S. economy looks like it could be on uncertain ground,\u201d writes Sarah Foster, Bankrate\u2019s U.S. economy and Federal Reserve reporter.<\/p>\n

    How does the Fed affect personal loans?<\/b><\/h2>\n

    The federal funds rate influences the interest rates lenders offer to new borrowers because it impacts lenders\u2019 costs. When the rate is high, lending is more expensive. As the Fed introduced rate hikes throughout 2022 and 2023, the average personal loan rate also increased.<\/p>\n

    Even after three consecutive rate cuts in 2024, the industry average remains near historic highs. The FOMC\u2019s September decision to cut rates by the quarter of a percentage point is unlikely to significantly budge the needle.<\/p>\n

    How the Fed impacts existing loans\u00a0<\/b><\/h3>\n

    The vast majority of personal loans are fixed-rate loans, meaning the interest rate remains unchanged from origination to when it\u2019s paid off. Borrowers with a fixed-rate personal loan will not see changes to their interest rate or monthly payments when the Fed raises or lowers rates.<\/p>\n

    That means if you lock in a low-interest fixed-rate personal loan, it won\u2019t change based on the federal rate.<\/p>\n

    Will personal loan interest rates start to decrease?<\/b><\/h2>\n

    The short answer is that they should \u2014 but it will take time, and borrowers with good to excellent credit will be the first to benefit. Some consumer loan rates have already ticked downward ahead of the cuts, including mortgage rates.<\/p>\n

    But McBride points out, \u201cPersonal loan rates haven\u2019t been particularly interest rate sensitive in previous rate cut or rate hike cycles, with rates for borrowers with good credit moving in a range much narrower than the scope of Fed moves.\u201d<\/p>\n

    Mark Hamrick, Bankrate senior economic analyst and Washington bureau chief, noted that the September rate cut was likely to be the first in a \u201csteady drumbeat of cuts\u201d from late 2024 to early 2025. He agrees with McBride that impacts are unlikely to be instantaneous.<\/p>\n

    \u201cBecause rates edged moved so high in response to historically high inflation, it will take some time to unwind much of that,\u201d Hamrick says. \u201cAs a result, borrowing rates will take some time to edge meaningfully lower as well.\u201d<\/p>\n

    McBride doubts that waiting to borrow will significantly impact the rates personal loan borrowers receive. <\/p>\n

    \u201cThe reality among many personal loan borrowers is that the loan is taken because the money is needed with some urgency,\u201d he notes. \u201cHolding off for lower rates may not be an option and the savings from doing so isn\u2019t a game-changer. On a $5,000, 3-year loan, a difference of one percentage point in rate is less than $3 per month and less than $100 in total interest over the term.\u201d<\/p>\n

    How can you get an affordable loan despite high interest rates?<\/h2>\n

    Personal loan interest rates are currently high, but the federal rate is not the only factor affecting your loan\u2019s cost. You can take several steps to help get the best deal possible, including improving your credit score and applying with a co-borrower. <\/p>\n

    \u201cThis is where shopping around among different lenders could really pay off,\u201d McBride adds.<\/p>\n

    Here are some of the steps you can take to get the best deal possible on your personal loan:<\/p>\n