As inflation continues to affect nearly every industry, finance experts are working to help consumers understand what to expect with current loan interest rates and how to limit the overall impact.
According to U.S. News, those who are impacted the most are consumers who need to take out a new loan or get a new insurance policy.
Most existing agreements, such as personal loans, auto loans, and mortgage loans have a fixed rate, so inflation can’t impact current rates.
However, credit card holders and those with a home equity line of credit or adjustable-rate mortgage can expect interest rates to change within weeks or months of each Federal Reserve funds rate adjustment.
Credit card holders can expect their interest rates to adjust in alignment with the funds rate hikes.
For example, with every 0.25 percent hike, credit card holders can expect the same increase to their annual percentage rate.
Those with home equity lines of credit or personal lines of credit can expect rate hikes more quickly, and possibly within weeks of a funds rate hike.
These borrowers could potentially ask their lender to convert some of their existing balance to a fixed rate, experts say — especially because the Fed is expected to increase the funds rate several more times this year.
Borrowers who have an adjustable-rate mortgage and are in the initial fixed-rate period are safe from current inflation impacts, but once the fixed period ends they can expect their rates to jump.
In general, any new borrower can expect to contend with higher interest rates, experts say, including on personal loans and auto loans.
The auto industry is grappling with rising rates and costs in all areas, including insurance rates.
Allstate recently announced it will be raising its auto insurance rates even higher due to a continued increase in physical damage and bodily injury severity.
Inflation has impacted repair costs due to supply-chain delays and higher labor costs.
Additionally, homebuilders are going to be facing continued higher costs of construction due to inflation as well as potential drops in demand due to rising mortgage rates, according to Reuters.
For the average consumer seeking inflation advice, experts say to focus on the following:
- Boost credit score by paying down debts and making on-time payments
- Borrow only when it’s necessary
- Refinance to a fixed-rate mortgage from adjustable-rate while rates are favorable
When seeking a loan or insurance in any industry, experts say to remember to always comparison shop for the best