If you need money, this might be the right way to go.
- A personal loan allows you to borrow money for any purpose.
- The fact that personal loans come with fixed interest rates makes them a good bet right now.
Whenever you borrow money, whether in the form of a mortgage, car loan, or credit card balance, you generally agree to pay interest on the amount you borrow . Now, some loans come with fixed interest rates, which means they can’t change over time. Other loans have variable interest, so your rate may change over time.
Personal loans fall into the first category – the interest rate you pay on a personal loan is usually fixed. And given today’s borrowing environment, that’s a very important thing.
A good way to avoid unpleasant surprises
One of the best things about personal loans is that they allow you to borrow money for any purpose. Want to start a business? You can use a personal loan to get your business off the ground. Do you want to renovate your house or furnish your basement? A personal loan could make this possible.
Just as significantly, the interest rate you lock in on a personal loan is usually the rate you pay until your balance is reduced to zero. And these days, that really justifies choosing a personal loan over competing loan products.
You see, the Federal Reserve is moving forward with a series of planned interest rate hikes. The reason the Fed is raising rates is to try to slow the rate of inflation, which has been skyrocketing since the start of 2022.
As the Fed raises interest rates and borrowing becomes more expensive, consumers are expected to start cutting spending. Once this happens, the demand for goods will not grossly exceed the available supply. And from there, the cost of goods can start to come down.
Now, to be clear, the Fed does not set consumer interest rates directly, like mortgage or credit card rates. But when it raises its federal funds rate (the rate banks charge themselves for short-term borrowing), consumer interest rates tend to follow.
Since rates are expected to continue to rise, anyone looking to borrow money should really try to lock in a fixed rate loan. And personal loans fit that bill. But other loan products do not.
So, let’s say you’re looking to make home improvements. You may be inclined to take out a home equity line of credit, or HELOC, to finance your upcoming project. But HELOC interest tends to be variable, so your borrowing costs could climb over time.
Similarly, you can have a credit card with an introductory APR of 0%. If you use it to finance your project, you could avoid interest for a limited period. But from there, your price could go up, and astronomically.
It’s all about peace of mind
Taking out a personal loan could save you the stress of seeing your monthly payments increase due to rising rates. It pays to shop around for a personal loan and see what rate you qualify for. But you might want to act fast, before it gets more expensive to get one.
The Ascent’s Best Personal Loans for 2022
Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.