How Federal Reserve interest rate hikes impact your borrowing costs


From credit cards to mortgages, it’s suddenly a lot more expensive to borrow money.

The Federal Reserve has raised its benchmark short-term rate 3 percentage points since March in an effort to curb unrelenting inflation, with another rate hike likely on the way next week.

“Borrowers are feeling the squeeze from both sides as inflation has stretched household budgets while borrowing costs for homebuyers, car buyers and credit card borrowers have increased at the fastest pace in decades,” said Greg McBride, chief financial analyst at

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It’s the combination of higher rates and inflation that have hit consumers particularly hard, he said.

The consumer price index, which measures the average change in prices for consumer goods and services, was up 8.2% year over year in the latest reading, still hovering near the highest levels since the early 1980s.

And “with more rate hikes still to come, it will be a further strain on the budgets of households with variable rate debt, such as home equity lines of credit and credit cards,” McBride said.

In fact, the Fed’s moves have already made borrowing substantially costlier for consumers across the board. Here’s how increases in the benchmark interest rate have impacted the rates consumers pay on the most common types of debt, according to recent figures from Bankrate.

Credit cards: Up 234 basis points

  • October average: 18.68%
  • March average: 16.34%

Credit card rates are now over 18% and will likely hit 20% by the beginning of next year, while balances are higher and nearly half of credit cardholders now carry credit card debt from month to month, according to a Bankrate report.

With the rate hikes so far, those credit card users will wind up paying around $20.9 billion more in 2022 than they would have otherwise, according to a separate analysis by WalletHub.

HELOCs: Up 334 basis points

Mortgages: Up 278 basis points

Auto loans: Up 162 basis points

  • October average: 5.60%
  • March average: 3.98%

Paying an annual percentage rate of 6% instead of 3% could cost consumers nearly $4,000 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

However, in this case, “rising rates are not the reason the average car payment is over $800 a month,” McBride said. “It’s the sticker price that is a lot higher.”

Personal loans: Up 90 basis points

  • October average: 11.20%
  • March average: 10.30%

Even personal loan rates are higher as the number of people with this type of debt hit a new high in the second quarter, according to TransUnion’s latest credit industry insights report.

“Those with good credit are still able to get rates in the single digits,” McBride said. But anyone with weaker credit will now see “notably higher rates.”

How to shield yourself against higher prices, rates

Amid fears of a recession and more rate hikes to come, consumers should “cut back on discretionary spending” where they can, advised Tomas Philipson, economist at University of Chicago and former White House Council of Economic Advisors Chair.

“You are going to need your money for necessities, meaning food, gas and shelter.”  



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