How a Recession Can Affect Personal Loan Rates

Personal loan rates are based on a number of different factors. When you are looking for a personal loan, you want to make sure that you get the best rate you can. The interest rate on the loan will influence your monthly payment and the amount that you pay for the loan over time. Therefore, you want to do your best to make sure that you find a good rate. One thing that can dramatically affect personal loan rates is when the economy goes through a recession. Here are a few ways that a recession can affect personal loan rates. 

Lower Prime Rate

Sometimes a recession can actually benefit those that are looking for personal loan rates. When the economy is bad, the Federal Reserve will lower the rate at which they loan money to banks. They know that the economy needs a boost. When the banks get a lower interest rate from the Federal Reserve, they in turn pass the rate decrease on to you. They mark up the rate to cover their costs, but it is still lower for the public. This encourages people to apply for loans and get the economy going again. For those that qualify, a recession can actually be a good thing for personal loan interest rates. 

Personal Factors

Another way that the recession can affect personal loan rates is by negatively affecting individuals. Many people end up losing their jobs and do not have the money they need to get by. When you do not pay your bills or pay them late, it can have a devastating affect on your credit score. When your credit score is hurt by the recession it can be very difficult to get a good rate on a personal loan. After the recession has helped damage your credit, it can be very hard to find a lender that will give you a good rate.

Even if your credit was not damaged by the recession directly, there are plenty of people that had questionable credit before the recession started. During a recession, lenders tighten up on the amount of money that they will lend. If your credit is bad at the beginning of the recession you may have trouble getting approved for the loan. If you do get approved, the rate is going to be quite a bit higher than normal.

blog comments powered by Disqus