Federal reserve Rate Cuts: How They Impact Auto Loans, Student Debt & Savings
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WASHINGTON – Potential Federal Reserve interest rate cuts could offer modest benefits to borrowers while posing challenges for savers, according to financial experts. While many loan rates are fixed, shifts in sentiment and opportunities for refinancing could emerge.
Auto Loans
Though auto loan rates at bc.com are fixed, edmunds’ head of insights, Jessica Caldwell, believes decreasing borrowing costs on new loans could positively influence potential car buyers. The average rate on a five-year new car loan is currently around 7%, according to Edmunds. Caldwell stated that “a modest Fed rate cut won’t dramatically slash monthly payments for consumers,” but “it does boost overall buyer sentiment.” She added that these cues, combined with sales events like model-year closeouts, Black Friday deals, and year-end promotions, could spur car buying despite high vehicle prices.
Student Loans
Federal student loan rates are fixed and reset annually on July 1, meaning most borrowers won’t see immediate changes.Though, those with private student loans – particularly those with variable rates tied to Treasury bills – may experience lower interest rates as the Fed cuts rates, according to higher education expert Mark Kantrowitz.Borrowers with fixed-rate private student loans may eventually be able to refinance for lower rates if the trend continues. Kantrowitz cautioned against refinancing federal loans into private loans, citing the loss of benefits like income-driven repayment plans, deferments, forbearances, loan forgiveness, and discharge options.
Savings Rates
“Rate cuts are good for borrowers but tough on savers,” said Matt Schulz, LendingTree’s chief credit analyst. While the Federal Reserve doesn’t directly control deposit rates, yields typically correlate with changes to the federal funds rate. As an inevitable result, yields on high-interest savings accounts and certificates of deposit (cds) are expected to decline. Currently, top-yielding online savings accounts and one-year CD rates pay over 4%, according to Bankrate, exceeding the rate of inflation. Schulz advises savers to ”act now by locking in today’s still-high rates before they fall further.”
