What Lower Interest Rates Mean for You
The Federal Reserve announced a much-anticipated 0.5% interest rate decrease on September 18, 2024 – the first decrease since March 2020. Lower interest rates certainly sound positive, but what does the drop actually mean for consumers and borrowers?
The Fed’s rates serve as a basis for lenders’ interest rates, which determine how much you will ultimately pay in interest on credit card and loan debts. Whether you’re considering taking out a loan or are a current borrower, these cuts could have implications for your wallet. We’ll outline some of the ways the rate drop could affect you, and what actions you might want to consider as a result.
Existing Variable Rate Loans
If you currently hold a loan with a variable interest rate such as an auto loan, mortgage, line of credit, student loan, or credit card, you could see that rate decreasing. While 0.5% may not be enough to make a significant difference in your monthly payments, the Fed could lower rates again in the coming months.
Steps to Consider
- Continue making the same payments you were, even if your minimum monthly payment decreases. By paying more than your minimum payment, you’ll chip away at your balance more quickly and pay less in interest charges over time.
- Move to a fixed rate loan at a lower interest rate by refinancing, especially if your credit score has improved since you took out your original loan.
- If you don’t see lower rates on revolving lines of credit and credit cards, you can still inquire about lower rates or shop around for a better deal and complete a balance transfer.
Existing Fixed Rate Loans
The only way you will likely see changes to a fixed rate loan is if you opt to refinance at a new, lower rate. This could include personal loans, auto loans, student loans, and mortgages. Federal student loan rates will remain unchanged until at least next summer.
Steps to Consider
- Shop around for the best rates and terms. Credit unions often offer lower rates and more favorable loan terms than other lenders – and we can help match you with one!
- If you consolidate credit card or other debts into a new, lower rate option, be sure to watch out for any rate hikes after an introductory period and factor in any balance transfer or closing costs.
- Refinance some or all of your existing student loans at a lower rate. But remember that by refinancing federal student loans, you will lose certain borrower benefits from your original loans. These may include interest rate discount, principal rebates, or some cancellation/forgiveness benefits that can significantly reduce the cost of repaying your loans.
Taking Out New Loans
If you’ve been holding off on purchasing a new vehicle or buying a home, the tides could be turning in your favor. These loan rates may not immediately be drastically lower, but further cuts could make a significant difference over time. Now is a great time to take stock of your financial situation and start planning for possible big purchases.
Overall, lower interest rates can save you money over the life of a loan. Learn more about our student loan refinance options and keep an eye on current rates.
*Federal student loans may qualify for payment and interest rate benefits that private student loans do not. Carefully consider your options before refinancing federal student loans, as they will no longer qualify for current and future federal benefits once refinanced with a private lender. For more information, visit studentaid.gov or contact your federal student loan servicer.