Published on July 25, 2022
Explore How Rate Bumps Impact Monthly Payments
On your recent shopping expeditions, you’ve likely noticed prices are higher than ever. Filling your cooler for a mid-summer day at the lake? Hold onto your beach hat; that 12-pack of pop you used to grab on sale for $1.99 might now set you back close to $7.00! Sky-high prices aren’t limited to the grocery store — inflation is everywhere.
In an effort to curb inflation and keep prices within reason, the Federal Reserve may occasionally raise interest rates. With the current economy, the Fed has increased rates three times already in 2022. Even more rate hikes are expected in the coming months, making this a good time to consider your current and future borrowing needs.
On the Road
Is a new ride around the corner? As you’ve learned in our Auto Loan Resource Center, smart car shoppers know what they can afford. You’ll want a monthly car payment you can manage; increases in interest rates will impact the monthly payment amount. With the Fed’s seemingly small rate bumps — increases are generally less than one percent — how much impact could you see? Let’s look at some examples:
Acquiring a $30,000 car loan at the current 3.99% APR* would have an approximate monthly payment of $552 for 60 months. If you decided to wait until after a potential .50% bump in rates (4.49% APR*), the monthly payment would increase to $559.
At first glance, finding an additional seven dollars in your monthly budget seems manageable. Of course, it’s important to consider the big picture; over 60 months, that rate bump will increase your total car purchase over $400!
In the Water
As you may expect, rate increases have a greater impact on payments for large recreational vehicle loans. A $50,000 boat loan at the current 5.24% APR* has an approximate monthly payment of $401. A .50% rate increase would make the monthly payment approximately $13 higher. It’s important to remember that this loan type is a longer term. Over the 180 months of this loan, the total cost difference after the rate bump would be over $2,300!
Knowledge is a wonderful thing, and we hope this information helps you determine what’s best for your borrowing needs. If now isn’t the right time, know what to expect around the bend.
Need assistance? We’re here to help anytime at 877.243.2528.
*APR = Annual Percentage Rate