The cost of debt for credit cards, vehicle financing and other loans will increase as a result of the Federal Reserve's latest interest hike.
The federal funds rate has gone up five times in a row, bringing it to its highest level since 2008. The Fed has been using larger hikes to curb the rate of inflation, which is currently up 8.3% year over year, well above its 2% benchmark.
The central bank increases its key interest rate in order to discourage spending and reduce inflation. There is a downside to each rate hike.
There are four things that will cost more.
Fed rate hikes affect your credit card's annual percentage rate, which is the amount of interest you pay for any outstanding debt not paid off by the end of the month.
Since the rate hikes began in early 2022, the average APR has climbed to over 18%. According to Bankrate.com, the average credit card interest rate could go as high as 19% with today's increase.
If you only make the minimum payment on your credit card each month, you'd pay less in interest costs than if you had a credit card with a higher rate.
Fixed-rate car loans will not be affected by the rate hikes. New auto loans and those with variable-rate financing have higher interest costs.
The average interest rate on a 60-month new car loan was 3.85% at the beginning of the 21st century. Greg McBride, Bankrate's chief financial analyst, says that with today's increase, the interest rate could go up to 5.5% to 5%. It adds up to an extra $32 per month in auto financing payments.
Rises in interest rates won't affect your loan if you have a fixed-rate mortgage. If you have a variable-rate mortgage, your monthly payments could go up.
Mortgage rates tend to go up when there is a rate hike, but they are more influenced by the bond market. The monthly costs on a 30-year fixed-rate $400,000 mortgage with a 20% down payment have gone up by over $600 per month since the beginning of the year.
Today's rate increase might already be baked into current mortgage rates, meaning they might not go up much further. Many people think that mortgage rates will level off for the rest of the year.
Personal loans and home equity lines of credit are variable rate loans.
The interest rate on a home equity line of credit was more than 4% in early 2022, but has since climbed to 6.51%. With the rate hike, the average rate could go up to 7 percent.
Home equity loans were 5.96% at the beginning of the year, and are now at about 71%, but they could get even higher with today's interest hike.
Depending on your lender, the size of the loan, and your credit score, how much you'll pay varies a lot.
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Inflation is up 8.3% since the beginning of the year, and more rate hikes are likely.
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