Interest rates could be increasing significantly — here's why you should apply for a personal loan now

Federal Reserve Chairman Jerome Powell has indicated that he wants to move a bit quicker when it comes to increasing interest rates at The Federal Reserve's upcoming Committee meeting on May 3 – 4. While speaking as part of an International Monetary Fund panel, Powell reportedly said that a 50 basis point hike (a 0.5% increase) is on the table for this meeting, according to CNBC.

The Federal Reserve's Committee meeting that took place back on March 16, 2022 resulted in a rise in target interest rate ranges to 0.25% – 0.5%. The move came out of concerns about the high inflation rate and is being made in an effort to see the inflation rate fall back to 2% over the long-run.

When the Federal Reserve raises its interest rates, interest rates across the board are affected. Meaning, rates for mortgages, credit cards and personal loans will likely rise due to the Fed's actions.

So if you've been thinking about taking on a personal loan for a home renovation, a much-needed car repair, or even to consolidate your debt, now might be the time to submit your application before interest rates increase.

When you take out a personal loan (or any other form of credit), you must repay that loan amount in fixed, equal monthly payments over the span of an agreed-upon length of time (call the term of the loan). In addition to repaying the principal, you will also pay interest each month.

Each lender offers their own APR range, but those ranges can still be influenced by interest rate hikes made by the Fed. The higher your interest rate, the more expensive it is for you to take on the loan. Of course, the goal is to borrow money as affordably as possible so you can save on those interest charges over time.

Right now, LightStream Personal Loans offer the lowest advertised interest rate on a personal loan, but of course, the interest rate you receive will depend on a variety of factors, including your credit score.

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If you don't think you'll be able to apply for the personal loan you want before interest rates increase, there are still a few things you can do to save as much money as possible when taking on the loan.

Start by working toward improving your credit score. Lenders use this to determine your creditworthiness as well as what interest rate you should be charged. There are some lenders who will still approve you if you have bad credit, but keep in mind that you will still be subject to higher interest rates if you have less than ideal credit. Generally, the higher your credit score the lower your interest rate will be. Improving your credit score makes you more likely to be approved for rates on the lower end of the lender's range.

Paying your bills on time is the most important thing you can do to help raise your score. FICO and VantageScore, which are two of the main credit scoring models, both view payment history as the most influential factor when determining a person's credit score (it accounts for 35% of your credit score). For lenders, a person's ability to keep up with their credit card, utility, student loan, mortgage and medical debt payments indicates that they are capable of taking out a loan and paying it back.

Next, you should try to lower your credit utilization rate. Your credit utilization rate is your total credit card balance divided by your total amount of available credit. So if you have a limit of $5,000 and you have a $2,500 balance, your credit utilization rate is 50%. Experts typically recommend keeping your utilization below 30%, and below 10% is even better. You can lower this rate by paying down your balance or asking your credit card issuer to increase your credit limit.

Another way to try to lower the amount you pay in interest charges is to sign up for autopay to make payments toward your loan. Some lenders actually offer a small APR percentage discount to borrowers who use this method. LightStream Personal Loans and SoFi Personal Loans are just a few lenders that offer an interest rate reduction for using autopay.

Plus, one other advantage to using autopay is that you'll never have to worry about accidentally forgetting to make a payment one month. So not only can it help make your personal loan just a little bit more affordable, but it can also help you keep your credit score intact.

If you've been mulling over applying for a personal loan, now may be a good time to act, as interest rates could increase in May. If you're taking out a large loan, having a lower interest rate could save you thousands of dollars over the course of a loan.

But if you aren't ready to take on a personal loan to cover a large expense, just work on improving your credit score and make sure you sign up for autopay when you do accept your loan. This way, you can save as much as possible on interest charges.

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