Should Recession Fears Stop You From Signing a Personal Loan?

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An economic slowdown could impact your ability to repay a loan. Read on to learn more. 

Personal loans are convenient in that they allow you to borrow money for any purpose, whether it’s to repair a car, improve your home, or upgrade your electronics. And generally speaking, they can be an affordable way to borrow — at least compared to racking up a credit card balance. This especially holds true if you’re a borrower with excellent credit.

But lately, there have been increased warnings about a potential economic downturn. And in light of that, you may want to rethink your plans to sign a personal loan.

Economists think things could change for the worse

The U.S. economy seems to be in good shape right now. Unemployment is low and consumer spending seems to be holding steady despite the higher borrowing costs that have ensued following a string of Federal Reserve interest rate hikes.

But many financial experts still seem convinced that economic conditions will deteriorate later this year. In fact, the Fed predicts a recession later this year, albeit a mild one, with a recovery slated for 2024 or even 2025.

In light of this, you may want to reconsider taking out a personal loan for one big reason. If a recession hits and it leads to an uptick in layoffs, your job could end up on the line. And if you lose your job, you might really struggle to pay off your personal loan.

In fact, it’s generally a good idea to try to shed some expenses ahead of a recession, not take on more. If you sign a personal loan now, you’ll have one more monthly payment to worry about. Even if your job doesn’t actually end up on the chopping block, the idea of being liable for that additional bill might end up being a big source of stress.

Will a recession actually strike this year?

Without a crystal ball, we really don’t know. The Federal Reserve actually hit pause on interest rate hikes at its last meeting, and that’s a good thing.

A big reason so many experts are convinced a recession is in the cards is that the central bank’s rate hikes have made borrowing expensive. And that’s something consumers might choose to rebel against in the form of spending less, leading to an economic decline.

But since the Fed didn’t move forward with a rate hike in June, it might be enough to keep consumers spending at a decent clip. And that could make it so a recession does not impact Americans this year.

All told, it’s hard to know what the next six months have in store. Much of that will depend on how inflation is measured in the coming months and what the Fed decides to do in light of that.

But either way, you should know that now’s not necessarily the best time to be taking on extra expenses, including personal loan payments. So if you’re able to hold off on signing a loan, you may be better off for it — especially if the reason you’re contemplating that loan isn’t a particularly urgent one.

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