Personal loan interest rates at near-record gap with credit cards, boosting savings opportunity

Interest rates on credit cards are much higher than personal loans, according to the Federal Reserve Bank of St. Louis. (iStock)

Because the Federal Reserve raises interest rates to reduce inflation, the impact of rate hikes can vary on different types of debt. This disparity has led to a close gap between interest rates on personal loans and credit cards, according to the Federal Reserve Bank of St. Louis.

The average interest rate on credit cards as of August was 16.27%, while the average interest rate on personal loans was 10.16%, according to the latest data.

This marks one of the largest gaps between commercial bank interest rates on credit card plans and personal loans in 24 months in recorded history. of St. Louis Fed.

The news comes as Americans rack up credit card debt. Credit card balances rose $46 billion in the second quarter of 2022, marking the largest quarterly increase in more than two decades, the Federal Reserve Bank of New York said. .

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On top of that, half of Americans have fallen into credit card debt amid rising costs, according to one study.

If you have high interest credit card debt, you may want to consider paying it off with a personal loan at a lower interest rate, saving you money every month. You can visit Credible to compare specific lenders and rates without affecting your credit score.

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Credit card interest rates are on the rise

The average credit card interest rate through August, which was 16.27%, was the highest in the history of the St. Louis report. Louis Fed, which began in November 1994.

This is notable, in part, because having a higher interest rate on your credit card balance can significantly increase your total debt.

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US household debt has also increased recently, increasing by $312 billion to reach $16.15 trillion in the second quarter of 2022, according to the New York Fed. Total household debt includes items such as credit cards, mortgages and student loans.

“The second quarter of 2022 showed strong growth in mortgages, auto loans and credit card balances, partly due to rising costs,” said Joelle Scally, director of the New York Fed’s Center for Microeconomic Data.

If you are struggling with unpaid debt, you can consolidate it with a personal loan at a lower interest rate. To find out if a credit consolidation loan is right for you, you can speak with one of Credible’s loan specialists and have all your questions answered.

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The Fed may raise interest rates in 2023 to reduce inflation

Inflation rose 8.2% year-on-year in September, according to the Bureau of Labor Statistics (BLS) – well below the Fed’s inflation target of 2%. .

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To slow inflation, the Fed may raise interest rates in 2022 and 2023. This move may affect interest rates on many financial products. For example, the average interest rate on a 24-month personal loan increased slightly to 10.16% in August, up from 8.73% in May.

If you want to take advantage of current interest rates before they rise, you may want to consider a personal loan to consolidate your debt at a lower rate. Visit the Credible Marketplace to compare specific lenders without affecting your credit score.

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Have a finance-related question, but don’t know who to ask? Email a Credible Money Expert at [email protected] and Credible may answer your question in the Money Expert column.

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