The Fed Raised Rates Again. Here's What That Means for Personal Loan Borrowers

You may want to hold off on signing a loan if you can help it.

Maybe there's an area of your home you've been looking to improve. Or maybe your car needs serious work, and you don't have the money in your savings account to pay for it.

When you need money, and you're looking for a relatively affordable way to borrow, you may be inclined to turn to a personal loan. Personal loans let you borrow for any purpose, and if you have great credit, you might snag a decent rate on one -- or at least a lower rate than you'd get with a credit card.

But the cost of getting a personal loan is likely to increase in the coming months. So if you're able to hold off on taking one out, that might be a better bet.

Why personal loans could get more expensive

Inflation has been surging for well over a year, and the Federal Reserve is trying its hardest to do something about that. The central bank has been raising interest rates to try to discourage consumer spending and cool inflation to a notable degree.

So far, the Fed has raised interest rates twice this year -- first in early February, and most recently on March 22. Both increases have been in 0.25% increments.

But let's remember that the Fed also raised interest rates seven times in 2022 to fight inflation. So all told, borrowing is expensive right now across the board, and it might get even more expensive in the short term.

That's why a personal loan may no longer be the affordable option you'd expect it to be. And unfortunately, this holds true even if you have excellent credit.

What's more, if your credit is pretty poor, now may not be a good time to take out a personal loan at all. You could get stuck with a high interest rate that makes your debt completely unmanageable.

When will personal loan rates come down?

The Fed likes to see inflation around the 2% mark, and the most recent Consumer Price Index had it at 6%. So clearly, there's still work to be done. And until inflation really starts to dip, we can expect interest rate hikes to continue.

If your need to borrow money isn't so pressing, then you may want to hold off on taking out a personal loan and put your plans on hold. If you wait a year, you may find that it's less expensive to borrow.

And if you're going to move forward with a personal loan anyway, try your best to boost your credit score a bit before submitting that application (unless it's already in the upper 700s or higher, in which case, you're pretty set). The more creditworthy a borrower you come across as, the more likely you'll be to snag somewhat of a break on your personal loan.

You can boost your credit score by doing things like paying bills on time and correcting errors on your credit report. Credit reports are still free on a weekly basis this year, so there's ample opportunity to get a hold of yours and make sure it's accurate.