Borrowing money used to be the way out of challenging situations. When in need or urgent expenses for household items or related funds, it used to be safe and easy to get loans from lenders and pay them back when required. However, with the new inflationary situation that has affected the United States economy in this post-pandemic era, it is now surprisingly more expensive to borrow funds.
Consumer loan experts at Credit-10 have addressed how the steady interest rates spike coupled with the inflation have made paying back loans significantly costlier than expected. This was after comparing the rates borrowers have to pay on their loans now to what they should have paid a few months ago.
In addition, Greg Mcbride, Bankrate’s chief financial analyst, observed how the borrowers are “feeling the squeeze” from all angles as all rates have increased and will most likely continue to do so. Hence, he predicts that the budgets of these households will continue to suffer strains, especially with the presence of existing variable debt.
How Inflation Has Affected Loan Rates
According to recent data gathered by Bankrate LLC in October, the interest rate hike has affected the rates borrowers are expected to pay on all sorts of loans, especially the most prominent ones.
Credit card rates which were about 16% in March, hit 18% in October and are expected to be significantly higher before the end of the year. Ted Rossman, a senior analyst for CreditCards.com, revealed that the percentage of credit card holders who now carry credit card debt has surged by at least 10% compared to last year. A WalletHub analysis also addressed this, revealing that those with credit card debt will eventually find themselves paying approximately $20.9 billion extra.
Homebuyers were also not left out of this additional rate payment as the mortgage rates had gone up 278 basis points by October. WalletHub’s analysis also forecasted that they would pay thousands of dollars extra in interest, depending on the mortgage plan.
Auto loan rates have gone up 162 points, and even home equity lines of credit have surged up 334 basis points. Personal loan rates are also higher, as revealed in TransUnion’s report, and only people with excellent credit scores today can get rates in single digits.
The Bottom Line
Specialists revealed that not only the US but other countries worldwide, like Spain and Sweden, have also reported higher interest rates which have gone up to over 7% and are still increasing.
Hence, Tomas Philipson, the former White House Council of Economic Advisors Chair, has counseled that the only thing Americans can do now is to reduce non-mandatory spending significantly. Philipson added that what most of the available funds should be going into, pending the time the inflation is controlled, should be necessities like food, shelter, and energy.
In addition, the Vice President of US Research and Consulting at TransUnion, Michele Raneri, also advised that it is high time Americans started creating cash reserves if they did not consider it before. She added that no one could tell what the situation would be in the following months, so it is only smarter to have emergency funds as a few hundred dollars stacked up could come in handy moving forward.
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