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How Do Fed Rate Hikes Affect Your Loans?

By: David Halverson October 19, 2022

In response to the highest inflation rates in decades, the Fed has embarked on a campaign of aggressively raising interest rates to get inflation under control before it causes serious damage to the economy. Fearing the worst, the stock market has fallen precipitously into a bear market, and market interest rates have skyrocketed. But what do all these market gyrations and Fed actions mean for your personal consumer loan portfolio? Here’s a look at how current and future interest rate hikes affect your loans.

Effect on Fixed Loans

Fixed loans that you have already taken out will not be affected by any increase in market interest rates. The loan you took out is a contract with the issuer at a certain rate for a certain period, and it cannot be changed. In this sense, any existing fixed-rate loans you have may end up seeming cheap to you as market rates go higher. These should be the last loans you pay off in a rising-rate environment.

Effect on Credit Card Debt

In many ways, credit card debt is the worst type of consumer debt you can have. Not only are your interest rates sky-high, but they are also adjustable. Banks are quick to increase rates in a rising-rate environment, such as in 2022, but they are slow to lower them when the pendulum swings the other way. 


The average credit card interest rate as of Aug. 2022 was 16.27%, according to St. Louis Fed data, and that has no doubt already increased. Some credit cards already charge closer to 25% or even 29.99%, and those rates may very well increase into 2023. Even though personal loan rates are also generally in the double digits, you may consider using one to pay down your credit card debt to avoid even higher rates in the coming months.

How To Get the Lowest Rates Now

Any type of consumer loan you can finance in the single digits is a good rate at this point in time. The best way to get low rates is to have a high credit score, which you can achieve by keeping your debt levels low and continually making timely payments. If your credit score isn’t good enough to get the best rates, you’ll have to deal with what the market will give you. 


Avoiding credit card debt and other forms of high-rate financing, such as payday loans, is a good first step. Shopping around for the best rates you can qualify for and using the assistance of a personal loan specialist is another prudent course of action. If you have the cash flow and the emotional toughness to take out an adjustable-rate loan, you may get able to snag a lower initial rate and an even lower rate in the future when the Fed rate raise cycle is over – but you’ll have to be prepared to pay increasing rates until that actually occurs.

Preparing for the End of the Rate Hike Cycle

The good news is that Fed rate hikes are a normal part of the business cycle. Eventually – and potentially, sooner rather than later – inflation will fall, the Fed will stop hiking rates and market rates will drop once again. At this point, you may be able to refinance some of your existing consumer debt into lower-rate loans. Although the market isn’t quite there yet, it’s time to keep an eye out for when the Fed finishes its rate hike cycle and market interest rates begin to fall.

The Bottom Line

While the Fed might seem like some monolithic entity that only deals with macroeconomic affairs, the truth is that what the Fed does and even says can have a direct impact on your daily life. This is particularly true if you have outstanding consumer debt, or plan to take out any new loans. As with any financial situation, the best course of action is to be fully informed about what is happening in the market. Although rates are high – and going higher – as of Oct. 2022, at some point, they will reverse. Keeping an eye on market developments is the best way to keep your interest costs as low as possible.

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