Personal loan

Want a Personal Loan? You may want to apply before the end of July

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It is a gesture that should not be postponed.


Key points

  • Personal loans are a flexible borrowing tool.
  • Applying for it as soon as possible could make this debt less costly.

Some loan products can only be used to acquire a specific asset. When you take out a mortgage, for example, your only option is to use that money to finance the purchase of a home. Similarly, with an auto loan, you can borrow money to finance the purchase of a vehicle. You cannot use some of this money to go on vacation or renovate your house.

The advantage of personal loans is that they are extremely flexible. A personal loan allows you to borrow money for any purpose. You can pull one out to fix your basement, repair an old motorcycle, or upgrade your TV and computer. And if you have good credit, you could qualify for a competitive interest rate on a personal loan.

But if you want to take out a personal loan, it is important that you apply for it as soon as possible. Waiting until the end of the month or beyond could mean ending up with a higher interest rate on your loan for an important reason.

Rate hikes could make personal loans more expensive

The Federal Reserve is scheduled to meet at the end of July, and the meeting is expected to result in another interest rate hike. The Fed has raised rates several times this year so far, and it is intentionally implementing rate hikes in an effort to slow the rate of inflation.

How exactly will this work? It’s simple. Inflation occurs when the demand for goods exceeds the availability of supply. If borrowing becomes more expensive following rate hikes, consumers are likely to start spending less. Once this happens, the gap between available supply and demand can narrow, leading to lower prices and less pressure on US budgets.

Of course, the downside to Fed actions is the potential for a recession. Recessions are usually caused by a noticeable decline in consumer spending.

But also, if the Fed goes ahead with a big rate hike at its late July meeting, it could make borrowing much more expensive. And so, if you want to take out a personal loan, you might want to apply for it over the next few weeks – before you face even higher borrowing costs.

How to qualify for a personal loan

Personal loans are unsecured, which means they are not tied to a specific asset that your lender can claim and sell if necessary (whereas with a mortgage, for example, your lender could force the sale of your house and use this product to get reimbursed if you are unable to repay your loan). As such, eligibility for a personal loan – and a competitive interest rate – is usually dependent on strong credit.

That’s not to say you can’t qualify for a personal loan if your credit score isn’t that stellar. But you might have more trouble in this case. Plus, you’ll likely be stuck with a less favorable interest rate on your loan.

Now, if your credit score needs improvement, it might be worth waiting to apply for a personal loan. But if your credit is strong and you know you’re interested in a personal loan, then you really shouldn’t delay your loan application. Waiting even a few weeks could mean being stuck paying a higher interest rate for many years.

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.