What Does the Fed's 4th 0.75% Interest Rate Hike Mean for Personal Loan Borrowers?

A once-affordable borrowing option could soon get a lot more expensive.

Inflation levels have been surging for months, forcing many consumers to raid their savings and rack up loads of credit card debt just to cover their basic bills. The Federal Reserve is trying to slow the pace of inflation. And it's doing so by raising interest rates.

Now to be clear, the Fed doesn't directly set consumer borrowing rates. Rather, it oversees the federal funds rate, which is what banks charge each other for short-term borrowing.

But when the Federal Reserve raises its benchmark interest rate, it becomes more expensive for consumers to borrow across the board. As such, if you're looking to take out a personal loan in the near term, you may end up getting stuck with a higher rate than you'd like.

Prepare to pay more

The great thing about personal loans is that they allow you to borrow money for any purpose. Need to fix your roof? You can use a personal loan to cover that repair. Want to renovate your kitchen? A personal loan could make that possible. You can also use a personal loan to start up a business or buy equipment you need to work from home. The choices really are endless.

Personal loans also tend to come with more competitive interest rates than other borrowing products, like credit cards. And so it's easy to see why they appeal to so many consumers.

But in light of the Fed's most recent rate hike, consumers should brace for personal loan rates to rise, the same way it could get more expensive in the coming months to take out a mortgage or auto loan.

Now the one silver lining with all of these rate hikes is that some banks are finally starting to pay a decent amount of interest on savings accounts and certificates of deposit. But while that's helpful for people with money to save, people who need to borrow are in a much tougher spot.

How to snag a lower interest rate on a personal loan

If you expect to need a personal loan in the coming weeks or months, there are a couple of steps you can take to lower your borrowing costs -- even in light of this recent rate hike. For one thing, you can work on boosting your credit score.

Personal loans are unsecured, so they're not tied to a specific asset. As such, the rate you're assigned for one of these loans will largely hinge on how creditworthy you are.

If your credit score is only fair, or good but not great, check your credit report for errors. Correcting a mistake that paints you in a less favorable light could help your credit score improve pretty quickly.

Another way to score a lower personal loan rate? Shop around. While rates may be up -- and climbing -- across the board, ultimately, each lender sets its own rate. So if you take the time to compare offers, you may find that you're able to eke out a modest amount of savings, even at a time when borrowing has gotten relatively expensive.