Why Taking Out a Loan Is About to Get Harder
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Here's your Money Briefing for Thursday, March 23rd. I'm J.R. Whelan for The Wall Street Journal. The Federal Reserve raised interest rates yesterday for the ninth straight time, and Fed Chairman Jerome Powell indicated higher rates could be with us for quite a while.
For consumers, these increases in rates are not something that is going to go away anytime soon. And so mortgage rates, auto loans and credit card debt is going to continue to get a little bit more expensive until the Fed feels like they can get inflation under control.
Coming up, we'll talk with the WSJ's Oyen Adedoyen about how you can get your personal finances in order to deal with rising rates. That's after the break.
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As many expected, the Federal Reserve raised interest rates by a quarter percentage point yesterday. And while that rate move was among the smaller increases the Fed has approved over the past year, it comes as the collapse of Silicon Valley Bank has sent jitters through the banking sector. So what does it all mean for everyday consumers like you and me? The WSJ personal finance team's Oyen Adedoyen has been talking to financial professionals about that, and she joins me now.
What is the latest Fed rate decision and why does it matter for consumers?
Hey, Oyen, thanks for being with us.
Thanks for having me.
So, Oyin, the Fed raised interest rates by a quarter percentage point yesterday. As simply as you can, what does that actually mean?
So that means that for us, things like mortgages, credit cards and auto loans are going to be a little bit more expensive. It's the Fed's effort to encourage people to spend less and borrow less. So credit card debt is going to be even more expensive to maintain. But things like savings accounts, high yield savings accounts are going to be a little bit more lucrative.
So what does that mean? Higher credit score requirements or more stringent credit checks?
It's hard to say for sure, but that's what I've been hearing from financial analysts. The director of research at Alexandria Capital tells me that things like getting a car loan, a mortgage, or a small business loan are going to be a lot harder for individuals. Goldman Sachs even says that tougher standards will be equivalent to a quarter or half point increase in the Fed's benchmark rate. I also spoke to Timothy Chubb, who's the chief investment officer at Girard, a wealth management firm. And he says that banks are definitely going to be a little bit more conservative when it comes to how much they're lending out and who they're lending to.
All right. So getting a loan could be more of a challenge. So let's talk about how people can get ahead of this. How can they get their personal finances in order to increase their chances of eventually getting a loan?
Financial advisors say that people should think more carefully before taking on new loans and shop around for different rates. People should really focus on paying down any high interest debt that they have, such as credit cards, first. And JR, here's where high interest rates are actually a good thing, because these rates can give savers several ways to earn more money on their cash accounts.
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