Inflation can have direct and indirect impacts on your personal loans. Find out more about inflation below, including how it might impact any personal loans you already have or loans you want to take out in the future.
What Is Inflation?
Inflation refers to rising prices. To count as inflation, the increase in prices must be across the entire economy or nation and result in decreased purchasing power.
That doesn’t necessarily mean that every price goes up. You can have inflation that increases the price of many goods while some prices remain the same or drop. But you don’t have inflation when only the price of a single item or type of item goes up. For example, if meat prices go up, but the prices of most other consumer goods stay the same or go down, that’s not inflation. The rising meat prices are more likely the result of factors burdening the specific industry, such as processing plant failures or disease among cows.
The term inflation refers specifically to the rate at which prices are going up. Economic analysts and others look at prices of selected groups of goods to understand whether inflation is present and what the rate is. One of the most common tools used to track inflation is the Consumer Price Index. This index tracks the price of goods and services in eight categories:
- Food/beverage
- Apparel
- Transportation
- Medical care
- Housing
- Education/communication
- Recreation
- Other goods and services
Inflation’s Effect on Interest Rates
While high inflation and the rising cost of goods can be bad for an individual’s wallet, it’s often a symptom of economic growth. That’s because inflation often occurs when demand is bigger than supply. Demand often grows quickly when the economy is growing, and people have the money to spend on goods and services.
However, inflation rates that rise too high too quickly can put a strain on a growing economy and cause problems for individuals and businesses. Because of this, the Federal Reserve often seeks to control inflation with changes to interest rates. If interest rates are higher, it slows down how much people are buying and can help stabilize economic growth and inflation.
When inflation rates are going up too fast or getting too high, the Federal Reserve raises the interest rate that banks can charge each other for loans. Banks usually use this as a guide to set their own interest rates. So, if the Fed raises the federal funds rate, rates go up for mortgages, auto loans and other credit types.
The takeaway here is that rising inflation typically leads to higher interest rates, though there can be exceptions.
Inflation’s Effect on Prices
Rising inflation means increasing prices across a wide variety of goods and services. Increasing prices create decreased buying power. That means that for every dollar you have, you can buy less with it than you could have prior to inflation going up. That’s true for all items, including luxuries and basic necessities.
So, someone who wants to buy a yacht or splurge on a resort vacation would have to spend more to get what they want compared to the cost at lower inflation. The same is true for basic needs like groceries, too, which means you get less bread, milk and eggs for your money. Inflation is an economic equalizer; everyone has to deal with it regardless of their income or lifestyle.
Can Inflation Impact Your Existing Personal Loans?
Almost all personal installment loans are fixed-rate loans. That means you agree to an interest rate at the outset of the loan and it doesn’t change over the terms of the loan. Increasing inflation leading to increasing interest rates would not impact the interest you have on an existing personal loan.
That doesn’t mean inflation is completely irrelevant to any loan you might have. Rising inflation means a rising cost of living. When more of your paycheck or other income has to go toward the cost of living — such as paying for groceries, transportation and medical care —  you have less to pay back debts. That can make it harder to make your loan payments and increases the risk of a missed loan payment even if your interest and payment amounts don’t change.
One of the best ways to avoid this type of issue when inflation occurs is to have an emergency fund saved up. You can use those savings to help cover the extra cost of living while inflation is high and still pay off your debts.
How Does Inflation Impact New Personal Loans?
If you take out new loans after rising inflation, you may be facing higher interest rates than you would have before. That increases the overall cost of your loan as well as the monthly payment you need to make. Pair that higher cost and payment with the fact that everything may cost you more, and it can make a new loan a bigger burden on your budget.
On top of that, since inflation increases prices, it may mean whatever you need the loan for in the first place costs more than it previously did. That could also lead to higher costs and loan payments. All the while, if your interest rate is higher, a larger part of each monthly payment goes to cover interest rather than paying down the principal you borrowed.
How to Get an Affordable Personal Loan
Basic economics won’t change just because you need a loan while inflation and interest rates are rising. But there are some things you can do to help ensure you get a more affordable personal loan. Here are some steps and tips to consider:
- Start by checking your credit. Your credit score and history play roles in whether you can get approved for a personal loan and at what interest rate. Knowing what your credit score is helps you know where you stand so you know what loans you can apply for, especially during times of rising inflation.
- Dispute any inaccuracies on your report. If you find incorrect information on your report, dispute it with the credit bureau in question. The credit bureau has a legal obligation to investigate potentially inaccurate information and make changes to your credit report to remove or fix information that’s found to be incorrect. If someone has reported a late payment that was on time or a balance on one of your accounts is listed incorrectly, this can drive your credit score down — and your potential interest rates up. Getting those issues fixed can help you get better loan terms.
- Pay off some of your other debts if possible. Reducing how much you have in credit card debt can help increase your credit score. A better score can mean better loan terms and reduced interest expense.
- Apply for a loan with a cosigner. If you don’t have the credit to secure the lowest possible interest rates, a cosigner might be able to help. A cosigner is someone with good credit who is willing to cosign your loan, agreeing that they will make the payments if you don’t. While this tactic does require you to find someone willing to take on that risk who also has good credit, it can result in a much lower interest rate.
- Get a secured loan. A secured loan is one that is backed by collateral. That’s something of value that the lender can take and sell to recoup any losses if you don’t make payments as agreed. Lenders see these loans as less risky because there’s a way to get the money back if you can’t pay the loan. Common collateral includes vehicles, boats, jewelry and other items of value. This can help you secure better loan terms, but it’s important to know that you could lose the collateral if you don’t make your payments as agreed.
- Apply for a lower loan</a> amount or a shorter term. A lower loan amount means less risk for the lender, which can result in a higher interest rate for you. The same is true for a shorter term — if you agree to pay back a loan in less time, the lender has less risk over time.
Of course, the best way to get an affordable personal loan is to start with the right lender. Do your research to understand rates and terms and how each lender will work with you.
Frequently Asked Questions
What size loan can I get if I have no credit?
Without at least $1000 worth liquid assets and collateral, you will not be eligible for any type of loan. If you don’t have these assets, you will likely lose money on the loan.
However, if you have some savings or investments that you can use as collateral, then you should be fine.
Additionally, collateral can be used if you have a 401k from your employer.
Can you get a loan with a poor credit score?
It depends on what kind of loan you want. If you are looking for an unsecured personal loan, you can still apply. You will need to have a better credit score if you want to apply for a secured loan (such as a home loan or car finance).
Paying off your debts on time can help improve credit ratings. For a better credit rating, it is important to contribute extra money each month towards your monthly payment.
What if I don’t have a credit check?
The answer is yes Here are 6 easy ways to get online loans with no credit check.
- CashNetUSA.com – Apply online for a payday loan – No Faxing, Waiting, and No Hassle. Only Approve, then Pay.
- Apply for an online personal loan from LendingClub.com – Interest rates as low as 1%, No Credit Checks & Bad Credit OK.
- Prosper.com provides an online installment loan with 0% interest on balance transfers and purchases.
- AutoTitleLoans.net allows you to apply online for a auto title loan – get approved in less than 24 hours. Within 2 hours you can receive money.
- Apply for an online bank loan from LendUp.com – Fast cash transfer into your account within 24 hours.
- BizLineLoan.com has over $100 Million in financing options.
What are some legitimate loans for people with bad credit?
If you are looking for legitimate loan options for someone who has been turned down elsewhere, it is important to look at what requirements they need to meet. This includes proof of income, assets, and so forth.
This will let you know which companies are willing to accept them, based off your criteria.
It is also worth asking if the particular lenders would be willing and able to provide you with the money.
If not, then you may want to move on to other options.
What Are Payday Loans Most Commonly Used For?
A payday loan is a short-term loan that can be used to cover financial emergencies such as bills or other costs. The lender gives the borrower a cash advance, at very high interest rates. This type of loan is commonly called a “payday loan”, as the borrower typically uses it to pay their bills until they get paid.
While payday loans are sometimes considered last-resort options, many people resort to them when they require quick cash access and don’t want long waits at banks.
People who are in debt and unable to pay their credit cards on time or don’t have the time to visit a bank to get a traditional loan may find cash advances appealing.
Many consumers believe that using payday loans is less risky than taking out a larger loan, which could lead to problems such as missed mortgage payments and repossession of property if the borrower misses several payments. However, lenders are required to charge higher fees in most states.
Payday loans should be repaid within 14 days. Remember that you will be required to pay additional fees each day you borrow the money. The fees will vary depending on how much you borrow, but the majority of lenders charge $15 for every $100. Payday loans are available online.
What apps let you borrow money immediately?
Asking for help is the best way you can find an app to borrow money. They might be used by friends.
If not, then check out the reviews on sites such as Trustpilot. They will often review the app and its features.
You might also try searching the internet for “app” and “borrow cash” to see what results come up.
Google Trends is also available. You can search for “instant loans” to see a list popular instant loan apps.
Statistics
- In California, for example, a payday lender can charge a 14-day APR of 460% for a $100 loan.6 Finance charges on these loans also are a significant factor to consider, as the average fee is $15 per $100 loan.1 (investopedia.com)
- If you’re preparing your bank account for the charges that WeLoans will cost to find a lender, put that thought aside because it’s 100% free. (abcactionnews.com)
- Unlike other personal loans, payday loans often feature interest rates ranging from 391% to 600%. (timesunion.com)
- The loans usually can be rolled over for additional finance charges, and many borrowers—as high as 80% of them—end up as repeat customers.89 (investopedia.com)
- Cons Up to 8% origination fee (abcactionnews.com)
External Links
consumerfinance.gov
americanbanker.com
How To
Fast Cash Loan Approval Process – You Can Apply Online
Online application is possible for quick cash loans approval. Online application is the best way to get fast cash. Fast cash loans are often used to pay emergencies like car repairs, medical bills, utility bills, etc. Payday loans are difficult to get approval for. You will be charged a lot of fees and it takes forever for your application to be processed. To avoid such situations, you should try out fast cash loans. These loans are easier than payday loans, and they don’t require any upfront fees. All you need is a good credit score, and you will be able to get approved for a quick money loan. You can even choose from different lenders to look around for the best deal. We will show you the basics of applying for quick cash loans to make sure you don’t waste any time.
- First, ensure that your credit score is good. This is crucial as you will need a lender for your request to be approved. You will get approved faster if your credit score is higher than average. MyFICO.com allows you to check your credit score.
- Be sure to repay the loan promptly after you receive it. Fast cash lenders typically require that you pay at least one month’s rent. However, if you cannot afford to pay, you can always ask them for a grace period (a more extended repayment plan). Many people take advantage of this option.
- Reputable lenders are the best. Excellent customer service makes it easy to repay the loan. Be sure to check their reviews before you decide on one. You can also read testimonials of customers who have used them in the past. Read through all the fine print carefully before signing anything. To be eligible for a loan, some lenders may require additional documentation.
- Hidden fees are something to be aware of. Hidden charges may be included in the interest rates of some companies. Most companies charge late payment fees. It is important to read and understand every detail of the contract.
- Consider getting a secured loan. Secured loans can be used by people with bad credit scores. Lenders will usually ask for collateral to secure the loan. This means that you can borrow money with no collateral.
You can save yourself a lot if you just follow these steps. Remember that fast cash loans should be available for those in need. Don’t waste time looking for quick cash loans. Instead, contact a reputable lender straight away.
