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The Federal Reserve’s two-year-long rally to tame inflation with high interest rates appears to be ending. Economists expect a Fed Funds rate cut announcement at the next Federal Open Market Committee (FOMC) meeting on September 17-18, 2024.
We talked with lending experts to understand what this means for business and personal loan interest rates.
Personal Loan Rate Predictions for 2024
Here’s how experts predict personal loan rates will shift for the remainder of 2024:
University Credit Union: Personal Loan Rates Will Be Influenced Quickly
“When the Federal Reserve announces a cut in the federal funds rate, the effects can start to influence personal loan rates relatively quickly,” says David Tuyo, president and CEO of University Credit Union.
According to Tuyo, rates may decrease within a few weeks or a couple of months after the announcement. However, timing depends on factors like lenders’ pricing strategy, competitive pressures and economic conditions.
Axos Bank: Fed Funds Rate To Fall Between 0.25% to 0.50%
Anthony Capizzano, senior vice president of consumer lending at Axos Bank, predicts the federal funds rate will likely fall between 0.25% to 0.50% in 2024. He also says some lenders have already reduced personal loan rates in anticipation of rate cuts.
Before refinancing a loan to lock in a lower rate, Capizzano recommends considering the cost, effort and time required. “There are typically fees associated with refinancing, so in most cases, the benefit of refinancing a loan with a rate drop less than 1% won’t outweigh the fees it requires to refinance.”
TD Bank: Expect an Extended Timeline for Personal Loan Rate Drops
Thomas J. (TJ) Duffy, senior vice president of personal lending at TD Bank, predicts a more extended timeline for loan rate reductions. “Although the Fed is expected to begin lowering rates in late 2024, the impact to personal loans is not necessarily going to be felt right away,” Duffy tells Forbes Advisor.
That’s because many factors impact personal loan rates, and different lenders will take different approaches to lowering rates. Whether borrowers should refinance this year depends on the need or urgency for the loan and their unique situation.
“For example, if borrowers have recently made improvements to their credit, they may be able to refinance and lock in a lower rate.”
How can borrowers qualify for competitive personal loan interest rates?
Angela Moore
Advisory Board Member
Joel Larsgaard
Advisory Board Member
As rates decline, FOMO may kick in, making you feel pressure to take advantage of the low rates. Be sure to consider your personal goals and financial situation carefully.
Figure out how much you need to borrow, when you’ll need it, what kind of loan you need (car, home, major purchase, etc.) and your plan to pay it off.
It’s important to stay on top of your credit report. Knowing your score and checking for errors is essential.
Do what you can to become more attractive to lenders. Things like paying down or restructuring existing debt, increasing income, maintaining steady income and taking care of negative items on your credit report can improve your status.
Check sources online and shop for the best rates prior to applying for a loan. Create a list of the lenders you plan to apply for and try to apply with them around the same time, as that will have less impact on your credit score and allow you to compare rates for the best deal.
It looks like rates for borrowers will be coming down in the coming months. While it’s unlikely that we’ll return to near-zero interest rates, this will ease the pain of borrowing. During this period, borrowers are likely to see great disparities between lenders. So it’s even more important to be a smart shopper.
That means getting quotes from multiple lenders. Don’t forget to check what rates your local credit union offers too. They often feature the best terms for borrowers.
As always, even though rates might be coming down, be careful how much you borrow. Taking on too much debt, even if the interest rate is a bit more favorable, can create real financial harm over the long term. Don’t bite off more than you can chew!
Business Loan Rate Predictions for 2024
Here’s how experts predict business loan rates will shift for the remainder of 2024:
Small Business Development Center: Rate Reductions by End of 2024
“Based on what has been mentioned by several Federal Reserve governors, it’s pretty likely there will be some reduction in interest rates between now and the end of 2024, but the days of prime being near zero are in the rearview mirror for a while,” says Tom Thunstrom, center director at the Small Business Development Center in southern Delaware.
Asked how soon rate cuts will impact business loans, Thunstrom says anything indexed to prime, such as SBA 7(a) loans, will see a near-immediate adjustment in interest rate. For existing borrowers with variable-rate loans, that would likely be reflected on their next billing statement.
Commercial mortgages or other collateral-based loans (vehicle or equipment, for example) may see similar adjustments for those looking to borrow, Thunstrom tells Forbes Advisor. “However, those adjustments may not happen quite as quickly.”
CDC Small Business Finance: Don’t Expect Significant Rate Drops Initially
“The signs are pointing to interest rates dropping, but it doesn’t look like they’re going to be going down significantly at first,” says Susan Lamping, vice president of sales at CDC Small Business Finance, an SBA lender. “It will most likely be nominal initially, with the potential for further rate cuts over time.”
Borrowers who have a fixed-rate loan and want to refinance to another fixed-rate loan may want to wait, as subsequent rate cuts will make refinancing more worthwhile.
However, this is a good time to refinance for fixed-rate borrowers interested in moving into a variable-rate loan, Lamping tells Forbes Advisor. “If the Federal Reserve keeps cutting interest rates, then those borrowers’ variable rates will continue to follow.”
How can borrowers qualify for competitive business loan interest rates?
Michael Merritt
Mortgage, Loans And Credit Expert
Susan Lamping
Small Business Lending, SBA Loans, SBA Community Advantage Loans Expert
Look at the loan holistically, not just the rate and payment. The term of the loan is an important factor in determining if it makes sense for a business since that impacts the total cost of the loan.
Shop around and compare multiple offers before agreeing on a new loan. The first step I recommend is to talk to a banker at your existing bank about options.
Oftentimes, an existing customer can receive incentives for additional products with the same institution or a streamlined application process. At a minimum, this can give you a baseline to compare other loans against.
Don’t sacrifice a good loan for the sake of speed. A lot of people want a fast loan, and they wind up literally paying the price for it. They’re very expensive. It’s better for borrowers to have diligence and patience as they seek out and work with a lender that’s going to offer a good loan without focusing on getting them a fast loan.
The fast lenders don’t ask for as much documentation. Their process is really easy, and because of that, the borrower might pay anywhere from 20% to 50% interest rates on those loans, and sometimes even more.
Small Business Lending, SBA Loans, SBA Community Advantage Loans Expert
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Bottom Line
For several years, borrowers have dealt with high rates, an obstacle that lessens purchasing power. For the latter part of 2024, rates are predicted to dip, but how much and how quickly will depend on monetary policy and vary by lender.