Rising Interest Rates: What This Means for Unsecured Loans
Updated: Sep 23
The Federal Reserve periodically adjusts its target federal funds rate in response to inflation, employment, and other economic conditions. While that's not the exact rate you'll pay as a borrower, it has a direct influence on the cost of unsecured loans — and understanding how that relationship works can help you time your application and manage your rate, whatever the Fed does next.
How Fed Updates Impact Your Unsecured Loan Interest Rate
The federal funds interest rate is set by the Federal Reserve, the U.S. central bank, and it influences the rates lenders charge across many types of credit — including unsecured loans. When the Fed raises rates to fight inflation, or lowers them to support growth, those changes don't hit all at once. They compound over a series of decisions throughout the year, gradually pushing the cost of new loans up or down along with them.
Because of this, it's worth paying attention to the broader rate environment — not just the outcome of the latest Fed meeting — when deciding when to apply for a loan.
Fixed-Rate vs. Variable-Rate Loans
Most personal loans are fixed-rate, meaning the interest rate and any fees stay the same for the life of the loan no matter what the Fed does afterward. Variable-rate loans work differently — their rate moves with market conditions and tracks the federal funds rate much more closely, which means a variable-rate loan's cost can rise or fall over time depending on where rates head next.
Is It a Good Time to Get an Unsecured Loan?
It depends on where the rate cycle currently stands. When the Fed is in a hiking cycle, locking in a rate sooner rather than later can protect you from further increases down the line. When rates are flat or falling, there may be more benefit to waiting to see whether better terms become available. Either way, if you have a real, near-term funding need, it's worth checking where current rates stand relative to recent trends before deciding whether to apply now or wait.
How to Get the Most Affordable Rate, Whatever the Environment
Check your credit: Your credit score and history directly influence your unsecured loan interest rates. Before applying, work on building your credit and make sure your credit report is free of errors.
Pay off debts: Lenders weigh your existing debt load when evaluating an application. Paying down what you can beforehand puts you in a stronger position for the lowest rate available.
Reduce loan amount and term: Larger loans and longer terms tend to carry higher rates and more total interest paid. Borrow only what you need, on the shortest term you can manage.
Add an applicant: A co-borrower with strong credit can help you qualify for a lower rate than you'd get on your own.
Choose the right lender: Don't settle for the first offer you get. Shop around, and lean on an experienced loan advisor to help you find the best available rate and terms in the current environment.
Whatever the Fed does next, Jumpstart Finance can help you find the loan that fits your needs and secure the most competitive rate available. Apply today to find out if you qualify!
