Money Management

The Federal Reserve paused interest rates at its last meeting, but it could raise them again at its next one. Read on to see what that means for you as a loan borrower. 

The Federal Reserve has been trying its best to slow the pace of inflation. The cost of goods has been elevated since mid-2021, and that’s put a strain on many people’s finances. So the central bank is committed to getting inflation back down toward the 2% mark. It’s this level, the Fed feels, that’s most conducive to long-term economic stability.

Meanwhile, there was a point last year when annual inflation, as measured by the Consumer Price Index (CPI), was a whopping 9.1%. May 2023’s CPI had a more encouraging annual inflation reading of 4%, though. As such, after 10 consecutive rate hikes, the Fed opted to pause that practice last month.

But that doesn’t mean more rate hikes aren’t on the way. And when the Fed meets in late July, it could opt to raise interest rates once more.

That shouldn’t impact current personal loan holders. But if you’re thinking of signing one of these loans, you may want to get your application in before the Fed’s next meeting.

Personal loans could get more expensive

There’s a reason so many consumers are drawn to personal loans. Not only can they be a fairly inexpensive way to borrow, but they’re quite flexible. You can use your proceeds from a personal loan to do anything from furnish your home to make repairs to your car — the choice is yours.

Another benefit of borrowing via a personal loan is getting to lock in a fixed interest rate on your debt. That’s important at a time when interest rates are rising.

Right now, credit card borrowers, for example, risk seeing their monthly payments go up if the Fed raises interest rates yet again. That’s because credit card interest can be variable, but that’s not the case with personal loans. And so if you’re in the process of paying off one of these loans, you can rest assured that even if the Fed implements another rate hike this month, it shouldn’t make your existing loan cost more.

The same can’t be said for future personal loans, though. If the Fed raises rates, those could get more expensive to sign. And that’s why it could pay to apply sooner rather than later if you need to borrow money.

Shop around for your next loan

Personal loan rates are higher across the board these days on the heels of the Fed’s recent interest rate hikes. So if you’re looking to sign a loan before the next rate hike, you may be eager to get it done quickly.

However, it pays to take at least a few days to do some rate shopping. It may be that one lender is able to offer you a more competitive personal loan rate than another, so compare a few offers before making your loan official.

You should also be sure to check your credit report before applying for a personal loan. Credit report mistakes can happen, and they can drag your credit score down needlessly. Correcting an error that works against you on your credit report could be your ticket to snagging an even more favorable personal loan rate — and locking in payments you can more easily afford.

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Subscribe & Save is wonderful, but it has some pitfalls. Read on to learn more. 

Shopping on Amazon often helps me save money because the online retail giant’s prices are often quite competitive. Not only do I order items on Amazon on pretty much a weekly basis, but I also take advantage of the Subscribe & Save program.

The way it works is simple: You set up a recurring shipment for a given item and it arrives at your door as per the interval you select. You might, for example, order toothpaste to come once every month or face cream to come once every three months — the choice is yours.

But while I happen to be a big fan of Subscribe & Save, it’s also far from perfect. Here are a couple of things I like about it, and a couple of things that bug me.

1. The automatic shipments are really convenient

When there are items you use regularly, having them arrive at your door automatically makes your life easier. This especially applies during periods when life is hectic.

When I gave birth to twins, for example, there was barely time in my schedule for me to shower, let alone run to the store for diapers — which, as you might imagine, we went through a lot of. The beauty of Subscribe & Save was that I’d get two bulk cases of diapers at my door every four weeks so I didn’t have to think about it at a time when I was frazzled and sleep-deprived.

2. It lives up to the “save” part of its name

When you order items through Subscribe & Save, you get a discount. My go-to Aveeno body lotion, for example, has a regular price of $10.67 and a Subscribe & Save price of $9.07. Some months, I find that my credit card tab is a good $10 to $20 lower due to the Subscribe & Save discounts I’ve snagged.

1. It can be a hassle when products are out of stock

Subscribe & Save is extremely convenient when the products you want are available. The problem is that when they’re not available, you’ll sometimes only get a warning at the last minute that your item isn’t going to ship. That, in the past, has left me scrambling to try to find a replacement item or running to a local store to try to find it.

2. It can cost you money when you forget to cancel an item you don’t need

You’ll generally get a notice to review your Subscribe & Save items before your package ships. Sometimes, that notice will end up in your spam folder — or at least that’s been my experience. Other times, you might simply forget to open that email and give your shipment a last-minute review. But that can be costly, because you might end up with items you don’t need.

Case in point: Back when my twins were 2 years old, they were potty trained and stopped needing diapers. But I forgot to cancel my Subscribe & Save order. So lo and behold, I wound up with two giant cases of diapers I had no use for. I wound up giving them away, but I would’ve preferred to have not spent the money.

All told, I recommend using Amazon’s Subscribe & Save program. But also, be aware of the pitfalls you might encounter.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Maurie Backman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.

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High-interest debt can stick around for years, dragging your budget down. Here’s how a personal loan can make all the difference. 

Americans carry a staggering amount of credit card debt. Owing a combined $986 billion to credit card companies, many of us feel the weight of previous purchases each month when it’s time to pay bills. If high-interest loans or credit card debt has you feeling discouraged, here’s how a personal loan can help.

Scenario No. 1

Louis owns a car, rents a nice condo, and generally appears to have it made. However, Louis was out of work for six months and racked up debt. Between the credit card debt and a loan Louis took out to buy furniture before losing his job, he now owes $30,000. The minimum payments on his total debt add up to $900 and this is draining his checking account.

And with an interest rate averaging 17% on the outstanding debt, Louis cannot see a way out. While he’s managed to make the minimum payments each month, he doesn’t feel as though he’s getting ahead. Louis knows that if he continues to make the minimum $900 payment each month, it will take him 46 months to get rid of the debt completely. It’s hard to imagine spending another 46 months coughing up $900 that he’d rather be using to build an emergency savings account.

What’s worse is that Louis has run the numbers and realizes that he’s going to pay just shy of $10,900 in interest on that combined debt. It’s money he could have used to save for a down payment on a house or to invest for retirement.

Scenario No. 2

Louis finally gets fed up with throwing $900 into what feels like a black hole each month. Instead, he visits his local credit union to apply for a personal loan.

At first, Louis is not thrilled with the 9% APR personal loan he’s offered, but once he runs the numbers he realizes how much money he will save. At 9%, Louis’s monthly payment will be $954, $54 more than his current monthly payment. However, his debt will be paid off in just 36 months instead of 46 months, and Louis will pay a total of $4,344 in interest rather than the $10,900 the high-interest debt would cost him. That’s $6,556 extra he can put toward starting a small online business he’s been looking into.

Americans seem to have a love-hate relationship with debt. Many of us buy what we want, when we want, but then regret the choices we’ve made. Properly utilized, debt can be a good thing. For example, taking out a personal loan to pay off higher-interest debt can save time and money. The trick is to refrain from taking on more debt or pulling the credit card out for non-necessary purchases.

Before applying for a personal loan, do this

Lenders save the best interest rates for borrowers with the highest credit scores. Before shopping around for personal loans, make sure your credit score is where it should be. Here’s how:

Order a free copy of your credit report from each of the three major credit bureaus. Legally, you’re eligible for free reports once a year. However, due to the current economic uncertainty, Equifax, TransUnion, and Experian are offering free online credit reports weekly. Look your credit reports over carefully, checking for mistakes. No matter how small the error, circle it. For example, if a report shows you living at an address you don’t recognize or owing money that you have already paid off, make a note of it. Dispute any mistakes with the credit bureau in question through that agency’s online portal. Wait 45 days. That’s how long a credit bureau has to get back with you concerning its findings regarding your dispute. If the bureau cannot prove their information is correct, the faulty information must be removed from your report. Sometimes, removing only a mistake or two is enough to increase your score. Check your credit score. The tricky bit is that Equifax, TransUnion, and Experian will supply you with your credit report, but not your credit score. Many credit card companies now provide their customers with a free monthly credit score. Check the websites associated with your credit cards to learn if one of your creditors offers this free service. Otherwise, it costs nothing to sign up for Credit Karma, where you can see your credit score for free. Credit Karma uses credit scores and reports from TransUnion and Equifax. If your credit score is lower than you would like, take steps to give it a boost before applying for a personal loan. Consider paying down debt and vowing to make all payments on time going forward.

Owing money is no fun, but remember this: You’re smarter than debt. No matter how the debt accrued, you’re able to develop and implement a plan to wipe the slate clean.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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If you make a small down payment, you may incur extra costs and have fewer lenders to choose from. Learn more about the pitfalls of a small down payment. 

Buying a house is an expensive financial commitment. You’ll likely need to get a mortgage lender to provide most of the funds necessary to purchase the property. And most mortgage lenders require you to make a down payment of some amount.

Ideally, you will put down around 20% of the value of the home you are buying. But that’s not reality for many people. In fact, the National Association of Realtors indicates the typical first-time buyer consistently puts down around 6% to 7%. And some lenders allow even less — as little as 3% in certain cases.

If you are thinking about making a small down payment, here’s what you need to know about the consequences of that choice.

You will have to pay for mortgage insurance

If you put down less than 20% on a home, you are considered a higher risk to a mortgage lender. The lender wants to make sure that if you stop paying and it has to foreclose, it can get back the money it lent to you. If you make a small down payment, lenders worry they won’t be able to recover all you owe plus their costs.

As a result, lenders generally require you to pay for private mortgage insurance (PMI) when you make a down payment below 20%. PMI typically costs anywhere between 0.5% and 1.5% of the loan amount annually. The median sale price of a home in the first quarter of 2023 was $436,800. If you put 10% down, borrowed the remaining $393,120, and paid PMI at a rate of 1.5%, you’d be looking at $5,896.80 per year in PMI costs. That adds $491.40 to your monthly mortgage payment.

To be clear, this insurance doesn’t protect you if you stop making payments. It just ensures your lender recovers its funds. You’d still lose your house, but you’re stuck paying almost $500 per month for this if you don’t have a 20% down payment.

You may find it harder to find a lender or get stuck with a loan at a higher rate

Even with PMI, you’re still considered a higher risk if you buy a home with a small down payment. As a result, you’ll generally be offered a loan at a higher rate than someone who is putting more money down.

If you’re making a very small down payment — below about 5% or 10%, then you may also have a much more limited choice of who to get a loan from, as not all mortgage lenders will allow you to borrow in this situation.

When you have a larger down payment, you can shop around with more lenders and hopefully get a better rate and a more affordable loan.

You could have problems if you want to refinance or sell

Finally, the last big issue you could face is that a small down payment could create issues if you want to refinance or sell your house.

To sell, you’d need to make enough money to pay off your mortgage in full plus cover all closing costs — which could include a 6% real estate agent’s commission. If you didn’t put much money down, you might fall short. Say you put just 3% down. Unless property values had increased substantially, you wouldn’t have enough money to cover closing costs plus pay off the remaining amount you owed.

You could run into the same trouble when refinancing, especially if property values declined since you purchased — you might not be able to meet your lender’s loan-to-value requirements since lenders aren’t going to give you a loan for more than your home is worth.

Ultimately, there are big risks to making a small down payment, so be sure to consider these downsides before you put down less than 20% on a home you’re buying.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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