Why the Latest Inflation Data Is Great News for Personal Loan Borrowers

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Inflation finally cooled off. Read on to see why that might positively impact those looking for a personal loan. 

In February, the Consumer Price Index (CPI), which represents changes in the cost of consumer goods, rose 6% on an annual basis. Now, that’s by no means a low level of inflation. In fact, a more “normal” rate of annual inflation is around 2%. But still, inflation has been cooling steadily since mid-2022. And in March, the annual rate of inflation dropped even more, to 5%.

That’s good news for a couple of reasons. First, it means that living costs are coming down. And that means consumers who have been falling back on their savings accounts and credit cards might finally get to break that cycle.

Secondly, a lower inflation reading in March means the Federal Reserve might choose to stop raising interest rates for a period of time this year. And if that’s the case, it could spell relief for consumers looking to take out personal loans in the near future.

Consumers could use a break from interest rate hikes

The Federal Reserve has been raising interest rates for more than a year now, with the goal to help bring inflation back to a more moderate level. See, the whole reason inflation has been surging is that there’s been an excess of demand for consumer goods and services relative to the available supply.

When the Fed raises interest rates, and it becomes more expensive to borrow money across the board, it’s apt to lead to a decline in consumer spending. That’s been needed to bridge the gap between supply and demand that’s been leading to rampant inflation.

But if the Fed finds itself pleased with the most recent CPI reading, it might hit pause on its rate hikes. If it does that, the cost of taking out a personal loan might hold steady rather than rise.

Now to be clear, the Fed is not in charge of setting personal loan borrowing rates. Those are set by individual lenders who give out those loans.

Rather, when the Fed raises interest rates, it tends to indirectly drive up the cost of borrowing across different loan products, from personal loans to auto loans to home equity loans. So if the Fed were to leave rates where they are right now for a period of time, it could end up being very helpful for those in need of a near-term personal loan.

Is now a good time to take out a personal loan?

Because the Fed has been raising interest rates steadily since early 2022, the cost of borrowing via a personal loan is already up. So generally speaking, right now, you’re probably not looking at the most competitive personal loan rates, even with a great credit score.

On the other hand, if you have a pressing need for money, a personal loan may be among your most affordable borrowing options. But if you want to help ensure that you end up getting as good a deal as possible in today’s borrowing environment, shop around with different lenders before signing a loan. That way, you can compare your choices and see which one makes the most sense for you.

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