The Federal Reserve Has Paused Rate Hikes. Here's What That Means for Personal Loan Borrowers

The Federal Reserve has been on a mission to cool inflation since early 2022. In fact, the central bank raised interest rates 10 times between March of 2022 and mid-2023, driving up the cost of borrowing for products ranging from auto loans to credit cards.

But at its June meeting, the Fed finally decided to pump the brakes on interest rate hikes after 10 consecutive increases. And that's something many consumers are no doubt grateful for. You might be especially grateful if you're thinking of signing a personal loan in the near future.

You may be able to borrow at a reasonable rate

Personal loans appeal to consumers because they can be used for any purpose (whereas mortgages, for example, can only be used to finance the purchase of a home). Also, personal loans tend to close pretty quickly.

It can easily take 30 to 60 days, and sometimes longer, to close on a mortgage. But with a personal loan, you might submit your application, be approved, and receive your loan proceeds within days.

Unfortunately, the Federal Reserve's recent string of interest rate hikes has driven up the cost of personal loan borrowing. But because the central bank didn't raise rates again last month, you may find that you can still borrow via a personal loan at a fairly reasonable rate. Had the Fed raised interest rates again, you'd potentially be looking at a higher borrowing rate in the coming weeks.

Will the Fed stop raising rates?

The fact that the Fed paused its rate hikes in June is a good thing not just for personal loan borrowers, but borrowers across the board. But will the Fed continue to hold off on rate hikes this year? That's the big question.

In June, the Consumer Price Index, which measures changes in the cost of consumer goods and services, was up 3% on an annual basis. That's fairly close to the 2% inflation the Fed consistently targets. (And if you're wondering why the Fed is fixated on 2%, it's that the central bank acknowledges that some amount of annual inflation is natural, but 2% is a reasonable increase that can lend to a steady, thriving economy.)

In light of that, there's a good chance the Fed will decide that it's making good progress in the fight against inflation, and that it will continue to leave interest rates where they are. But if the Fed raises rates at its next meeting in late July, that could drive up the cost of borrowing yet again.

As such, if you're ready to take out a personal loan, you may want to apply for one very soon. That way, you won't run the risk of seeing interest rates rise again.

That said, don't rush into your personal loan application, but rather, shop around with different lenders. Each lender ultimately sets its own rate based on factors such as your credit score and the sum you're looking to borrow. And comparing offers is a good way to snag the best deal you can.