3 Ways to Make the Fed's Moves Work for You
Here's how to take advantage of low interest rates without letting lenders take advantage of you
Consumers still have the chance to negotiate favorable interest rates, which are close to historic lows. Now is the perfect time to call credit card companies to ask for lower rates, lock in favorable financing on car loans, or refinance homes. But it's not as simple as checking the latest move from the Federal Reserve. Here's what consumers need to know:
Credit card companies are more willing to offer lower rates
Card providers often say yes to consumers who ask for lower rates, especially when those consumers have a record of paying off their bills each month. But now is a particularly opportune time to shop around or call providers and ask for lower rates, says Bill Hardekopf, chief executive of LowCards.com. Companies are eager to keep their best customers, and the average credit card rate is just over 13 percent, a two-year low, according to IndexCreditCards.com.
The downside: Even consumers with so-called fixed-rate cards can find their interest rate climbing again for a variety of reasons unrelated to their own behavior, including economic ones such as higher inflation.
Auto loans are relatively cheap
Consumers in the market for a new car are in luck because the current low interest rates mean that consumers with solid credit scores can get relatively inexpensive financing of their vehicles.
The downside: Another emerging trend can hurt consumers: Car loans are getting longer—one recent J.D. Power & Associates study found that one quarter of car loans now stretch out over six years or longer. That means consumers are spending more on interest. LeaseTrader.com estimates that with a seven-year car loan, a $20,000 car will cost an extra $5,335 in interest. To take advantage of the current market, consumers should lock in the lower interest rates and arrange to pay their loans off in as little time as possible.
It might pay to refinance
"Now is a good time—assuming [a consumer is] creditworthy—to be looking into getting a fixed-rate mortgage," says banking consultant Bert Ely. According to Freddie Mac, the average 30-year fixed-rate mortgage is just over 6 percent—up slightly over the past several weeks but down from around 6.5 percent two years ago. The average 15-year fixed mortgage is about 5.6 percent, making it a better deal for those willing to make higher monthly payments. "The rate savings aren't insignificant," says Ely, who recommends consumers look at the 15-year option, in addition to adjustable-rate mortgages for those willing to accept rate fluctuations.
The downside: Refinancing carries fees, generally around 1 to 2 percent of the loan's value. While refinancing to pay off credit card debt is a tempting solution to consumers paying high interest rates on their plastic, it also increases the risk of foreclosure if consumers can't pay their monthly mortgage bill.
Reader Comments
Bush and his legacy.
Lowering published prime Interest rates will not affect the consumer much. Real repayment interest rates are held high by the margins required to pay for excess within the loan industry and for the excessive abuse of past borrowers.
I said it before and it is proved. I agree with most of the above comments.
Greed. More stuff for fewer people. More power at the top, less money at the bottom. Not much for domestic liquidity. Remember that trickle down was proven to be suck it up. You saw it yourself. The question, "what to invest in" when Bush the pirate kid took office? My advice to my family was to buy energy when Junior took office the first time. Also buy ownership of water and commodity of real value. Not paper. (Our family does not invest in munitions which was the most obvious choice for quick gain). Revenge is expensive, NO? Defeating the Russians with economic spending (like a space race and fighting a loosing war in Afganistan) was a generic concept published in the 1950's by the Grape and Jelly people - the Welsh society. Thank you Ronald for taking credit.
My previous advice to our recent Governor Davis was to let our energy companies and distributors of energy fail then buy them for the public at a favorable rate. Penney's on the dollar. Then just rescue those that over indulged in single retirement plans with what existing welfare programs Reagan may have left intact. I am right again. Let them feel the bite of reality. Certainly I did not agree to guarantee loans to support existing failed policy and retirement schemes of those theives who supported this guy who used the stripping of wealth of retirement programs and companies to place him in office.
Now we all face new taxes and much less service. Not just California with the worlds 5th largest and pretty robust economy. Realize that most political folks are working for someone special other than their constituancy. Certainly they are not working for the US and its residents.
Stop and take a look at history
In the past 150 years we have not had one republican president who has been fiscal minded or reduced government. So this theory that Democrats just spend is “just plain ignorant". Yes, democrats do and more than likely will raise taxes. But pick your poison people - The Republicans run the country on a credit card - how do you think the war is being funded, and that stimulus check coming in the mail is based on paper without anything backing it up. When George W. took office there was a projected surplus on the books, George blew that projection in less than six months in office and then took out his Congress issued credit card and started spending beyond the means of this country. Reduction in taxes means we spend beyond our means. And, running the country on a credit card is the Republican way of doing business. The democrats raise taxes, but as long as the taxes are raised on those that can fairly afford to pay, in my book that is fair. So Dem's when we finally get the "insane ones" out of the white house, don't raise taxes on the lower and middle class, raise the taxes on those you can afford it and gain the most from our country.
If you have a high rate on a mortgage you can do better
If you have an interest rate that is above 6.5 you should consider refinancing. I am biased of course because I am a lender, but even with a rate at 6.5 there are the possibilities of a no closing cost refinance. Since you won't use equity, even saving $50 a month maybe worth it. Plus over the life of the loan you will be saving a ton. If you have an adjustable rate or a prepayment penalty you may still have options. Hey it doesn't cost anything to have a lender run some numbers for you. If anyone has questions you can contact me through my website www.lancastermortgagelender.com
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