The federal government’s decision to raise key interest rates by three-quarters percentage points is good news for savers, but not so much for borrowers. You can expect to pay more for credit card debt, car loans, and certain student loans. [Here’s what the Fed’s decision means for mortgages.]
credit card
Credit card rates are closely tied to the Fed’s behavior, so consumers with revolving debt can usually expect these rates to rise in one or two billing cycles.According to the recent average credit card rate was 16.73 percent Bankrate.comIncreased from 16.34 percent in March.
Greg McBride, Chief Financial Analyst at, said: Bankrate.com.. “And the cumulative effect is growing. If the Federal Reserve raises a total of 3 percentage points this year, your credit card interest rates will rise by 3 percentage points by the beginning of the year.”
Car loan
Car loans are also expected to increase, but those increases continue to be overshadowed by rising costs of buying cars (and the pain of paying for petrol pumps). Car loans tend to track the Treasury for five years affected by the federal funds rate, but that’s not the only factor that determines the amount to pay.
The borrower’s credit history, vehicle type, loan period and down payment are all included in the rate calculation.
According to Dealertrack, which provides business software to dealers, the average interest rate on new car loans in May was 5.08%. This is almost a complete percentage point since December 2021, when the rate reached its lowest point since 2015 and the company started tracking rates.
The average rate of used cars in May was 8.46%, almost full percentage points higher than in December. However, these charges are very different. According to Dealer Trucks, borrowers with the lowest credit score in May received an average interest rate of 20%, while individuals with the most pristine credit history received an interest rate of 3.92%.
Student loan
Whether a rate hike affects student loan payments depends on the type of loan.
However, new batches of federal loans will be priced in July each year based on a 10-year government bond auction in May.Those charges Loans are already skyrocketing: Borrowers with federal undergraduate loans after July 1st (and before July 1st, 2023) will pay 4.99% from 3.73% in the year-ago quarter.
Private student loan borrowers should also expect to pay more. Both fixed and floating rates are linked to benchmarks that track federal funds rates. These increases usually appear within a month.
However, the Fed is not over yet and has set interest rates to reach 3.4% by the end of 2022. Private lenders will probably burn those and other expectations into interest rates. This means that the borrower will pay 1.5 to 1.9 percentage points more. According to the length of the loan period, Mark Cantrowitz, a student loan expert and author of “How to Seek More University Financial Assistance,” explained.
