Interest Rates keep dropping over the years in an effort to improve the country’s money supply. This prevents economic recession or slowdown, which would otherwise lead to job losses and closure of business. What you probably don’t know is that if you borrow money at lower interest rates, you’re stimulating the economy and allowing companies to grow and expand.
Low-interest rates also encourage consumers and companies to borrow and spend. With the Covid-19 pandemic, interest rates are even being depressed further to keep the economy afloat. What do these low rates mean for your debts, savings, and investment? Well, it can be both favourable and unfavourable depending on your situation. Read on to learn more.
Impacts of Low-Interest Rates on Your Finances
If you’re a borrower, you will get relief if interest rates drop. If you’re paying off debt like a credit card balance, then its interest rate fluctuates, the annual percentage rate (APR) will significantly decrease. While this won’t affect the overall amount you owe the institution, you will have a lower interest charge. Here are some of the best rates for personal loans.
People who would wish to make major purchases like a home or car will access loans with lower rates that are more favorable.
But this is no good news for bank account holders. Dropping interest rates means they will get lower returns on savings made to the bank. Whether you’re using a money market account, savings account, or checking account, the percentage of interest earned will significantly fall.
For investors, the low-interest rates will affect them depending on the type of investment. For instance, if you have money in the stock market, you’re likely to benefit from low interest rates. When the rates are low, more banks are lending, and consumers have easy access to more money to spend. On the other hand, companies can make more sales and revenues, which can make their stock shares increase in price.
How Can To Take Advantage of the Lower Interest Rates
When interest rates keep on dropping, you can take a few critical moves to benefit from “money being cheaper.” Both borrowers and investors have their fair share of advantages, as listed below.
Here are a few strategies you can use as a borrower to benefit from this.
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Transfer Your Credit Card Arrears
With low interest rates, you can quickly pay your credit card balance by transferring the debt to another credit card. You can take a second credit card with a low interest rate or simply go for a balance transfer credit card. The second option has a 0% initial APR on transfers between 12 to 21 months, so only go for it if you can pay the balance within that time.
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Consolidate the Debt
If by any chance, you have several personal loans or credit card balances, you can take a debt consolidation loan to help you control your liabilities. That means you will combine all your loans into a single enormous debt then pay it off once a month. This will make repayment easier and more manageable, and what’s more, you will benefit from the lower interest rate.
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Refinance your Loan
If you have a loan, let’s say a student loan or mortgage, you can refinance it, which means taking out a new loan to pay off the old one. You will, of course, have a lower interest rate on the new loan and probably have a fixed rate to keep it low. To qualify for this, you need to have a good credit score. The best thing with this is that you will save quite a lot on the interest fees.
Investors can use the following strategies;
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Sell bonds
When interest rates fall, bond prices usually go up. If new bonds have lower interest, you can consider selling off your new bonds to get some profit out of them.
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Buy property
This is the best time to take a home loan and buy your dream house or invest in other properties, as long as you have low interest rates or a reasonable mortgage rate.
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Use interest savings
You can put the extra interest amount charged on your car loan or mortgage into an investment before paying off the debt.
Final Thoughts
Low interest rates are bad for savers but suitable for anyone settling a debt. You can greatly benefit if you borrow money at lower interest rates to finance a major investment like a home or a car. Be sure to use the above strategies to benefit from low interest loans.
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