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Fed Rate Cut Doesn’t Mean It Will Be Easier to Get a Personal Loan

[Dec 22, 2008.]


The latest Federal Reserve rate cut to a range as low as zero isn't expected to have much effect on consumers right away, but could start to have an impact on some types of lending as early as the first quarter of next year. The Fed plans to buy up mortgage, credit card, and student loan debt to help the economy.

"These actions can directly lower mortgage interest rates and the interest rates on other types of consumer debt," Dean Baker, co-director of the Center for Economic and Policy Research, told MarketWatch. "In effect, the Fed is stepping in as a very big actor with the explicit goal of driving down these interest rates. If it is prepared to buy enough debt, it can drive these rates down."

But many consumers may see little benefit from the rate cuts on credit cards and personal loans. Most credit card companies don't really lower their rates much after Fed changes. Car loan rates may not go much lower either.

Furthermore, people with bad credit will still have difficulty obtaining personal loans or other types of credit. Lenders will likely remain reluctant to do business with people who have bad credit, whether they are seeking a personal, auto, or other type of loan.

For people who have bad credit and need a personal loan, the best thing they can do is try to boost their credit scores. That means staying current on bills, paying down debts, and putting the brakes on excess spending. Sticking to a plan to clean up finances over a period of time can prepare potential borrowers to take advantage of the rates on loans while they remain low. Even if it takes a while to repair bad credit, interest rates are likely to remain affordable for some time.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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