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The influence is limited, but it's there.
Changes in the political and economic landscape affect everything from interest rates to employment to average income. Understanding these changes can help you make smart financial decisions.
The president can affect your financial livelihood in a number of ways. If you're considering borrowing money, you might want to know how the president-elect influences personal loans. Here's what you need to know.
The Federal Reserve (or "the Fed") is independent from the executive, legislative, and judiciary branches of government. It is largely insulated from political influence by design. While Congress sets the goals of the Federal Reserve -- price stability and low unemployment -- the members of this central banking system have full discretion over how they achieve those goals. This independence is important. Decisions that are best for the economy in the long run are often politically unfavorable and difficult in the short run.
The president-elect does have the power to nominate Fed board members -- including the Chair and Vice Chair -- which then must be confirmed by the Senate. That said, board members serve 14-year terms with a new term starting every two years. As a result, no single president could ever nominate a majority of the board.
No member of the government, the president included, can order the Federal Reserve to take a certain action. However, that hasn't stopped many U.S. presidents from pressuring the central bank to implement monetary policies for their own political advantage. Often, presidents who are up for re-election seek monetary policies that will provide a short-term economic boost to help them win favor.
Famously, the Nixon tapes show former U.S. president Richard Nixon pressured Federal Reserve Chair Arthur Burns to enact expansionary monetary policy, despite concerns about inflation. Presidents Herbert Hoover, Harry Truman, John F. Kennedy, Lyndon B. Johnson, and Ronald Reagan have all tried as well. Last year, President Donald Trump criticized the Federal Reserve repeatedly for not lowering rates to stimulate the economy, claiming that he could demote Fed Chair Jerome Powell. Whether or not the president-elect has the power to fire the Fed Chair is still a legal gray area. Doing so would be highly unconventional.
Control over interest rates is one of the central tools the Federal Reserve can use to guide the economy. It sets the target federal funds rate, which is the interest rate at which banks borrow from each other. Raising this rate slows rapid growth and protects the economy against inflation. On the other hand, lowering it stimulates the economy. Currently, the federal funds rate is set to zero in an attempt to pull the economy out of recession. This has caused personal loan rates to fall substantially.
You've probably noticed that the interest rate set by the Fed isn't the same as the interest rates you pay. However, the two are connected. When it comes to personal loans, the federal funds rate plays a part, but your credit score and the current economic climate are bigger factors. This means that changes in the federal funds rate are often, but not always and not immediately, reflected in personal loan rates.
That being said, many personal loans come with fixed interest rates. This means your interest rate isn't going to change over the term of your loan, regardless of changes in the economy and the federal funds rate. Variable-rate loans, on the other hand, have interest rates that can shift over time.
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Banks are free to set interest rates on personal loans however they wish. Generally, they determine personal loan rates based on the following factors:
This means that the personal loan rates you qualify for are largely influenced by your creditworthiness and the bank's overhead costs as well as the federal funds rate and the current economic climate.
If you're shopping for a personal loan, there are a couple things you should look for. Specifically, pay attention to the APR and interest rate you'll be charged. These determine the cost of your loan over time.
Imagine you took out a $20,000 personal loan with a 12% interest rate and 5-year term. You'd pay about $445 a month. In the end, this loan would cost you almost $4,300 in interest charges alone. The same loan with a 7% interest rate would require monthly payments of about $395 and cost $1,365 in interest. If you can secure the loan with the lower interest rate, you'd save nearly $3,000.
Interest rates aren't the only thing to consider when looking for a personal loan. There are a number of fees you should look out for, as well. For example, late payment fees are fairly universal, but it's still worth looking for a lender with low late fees. Origination fees are somewhat common, too. Still, it's better to look for a lender that doesn't charge them. You should also avoid prepayment fees. These fees are charged if you decide to pay off your loan early.
Finally, you'll want to consider the loan amounts and loan terms offered by each lender. Calculate your monthly payments, including the interest and fees, to make sure you can afford them.
The president-elect has limited direct influence over personal loans. That being said, the state of the economy does impact personal loans. And of course, the economy is hugely influenced by the president. That's why it's important to vote.
Regardless of who is elected, though, you have control over the loan terms you qualify for and accept. Maintaining good credit can help you get the best loan rates, and careful research before you jump into a loan will help you find the best deal.
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
Rates quoted are with AutoPay. Your loan terms are not guaranteed and may vary based on loan purpose, length of loan, loan amount, credit history and payment method (AutoPay or Invoice). AutoPay discount is only available when selected prior to loan funding. Rates without AutoPay are 0.50% points higher. To obtain a loan, you must complete an application on LightStream.com which may affect your credit score. You may be required to verify income, identity and other stated application information. Payment example: Monthly payments for a $10,000 loan at 8.49% APR with a term of 5 years would result in 60 monthly payments of $205.12. Some additional conditions and limitations apply. Advertised rates and terms are subject to change without notice. Truist Bank is an Equal Housing Lender. © 2024 Truist Financial Corporation. Truist, LightStream, and the LightStream logo are service marks of Truist Financial Corporation. All other trademarks are the property of their respective owners. Lending services provided by Truist Bank.
Citi Personal Loan disclaimer:
**Rates as of 05-31-2024. Your APR may be as low as 11.49% or as high as 20.49% for the term of your loan. The lowest rate quoted assumes excellent credit and a loan term of 24 or 36 months. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.