With the financial market recovery in full swing from the recent economic recession, data from several sources suggest that people are taking out more and more loans. This seems to be in direct relation to the downwards trend of some interest rates as data from the Federal Reserve shows. Credit cards loans, mortgages, student loans, and car financing etc make up the bulk of all lending that takes place in the U.S every year. This article will explore the co relation between the possibility of whether or not there is a trend of depressing loan interest rates and if it figures in the trend of increasing borrowing.
Credit Card Interest Rates:
With around 174 million Americans using credit cards for paying their daily expenses, this makes it one of the most common forms of loans taken out in the country. According to a survey conducted by the U.S. Federal Reserve, the average amount of credit taken out on credit cards has risen by 1.16% in 2016 compared to the previous year. However, a U.S. based online credit finance research company found that the average rate of interest charged by the top one hundred credit card issuing companies didn’t show any significant reduction in their charges. The average interest charged to an American credit card user stood at 15.18%, which is a sliver lower than it was six months ago at 15.19%.
This, therefore, could not be a factoring element in the rise of credit card loans taken out in the past year. However, a report published by an online data analyst company noticed a significant increase in marketing of credit cards this year, which might have influenced the increase in the user base.
Mortgage Interest Rates:
The average 30 year mortgage has remained more or less uniform over the past several years, same as the 15 year mortgage policies. However, according to a market surveys, these rates have recently been climbing to levels that were not observed since a few years ago. At the tapering end of 2016, the 30 year mortgage rate crossed the 4% barrier and stood at 4.08% as compared to 3.95% during the same period the previous year. This average was calculated by analysts using data from policies offered by large market lenders.
Despite of the increase in interest rate in mortgages, more people seems to be lending to purchase houses. Data released by the Federal Financial Institutions Examination Council as the Home Mortgage Disclosure Act (HMDA) showed that for the past several consecutive years the number of new home- owners has been increasing. The most common type of mortgages taken up by them were 30 year policies. The data also revealed that fewer people were refinancing their properties.
The concept that interest rates are reducing, therefore does not explain the increasing number of people taking out mortgages. This could, however be attributed to an improving economy and essential, economic stability of the borrowers.
Student Loan Interest Rates:
The nearly 44 million students who took up student loans to finance their education had been doing so at a reduced level for the past four years due to the Congress passing a bill in 2008 for a temporary interest rate reduction. The cut, which only affected subsidized Stafford loan, lasted for four years before being reverted to the normal fixed rate. According to statistics from the Department of Education this led to an increase in number of students making good of the opportunity and securing loans to fund their higher education.
However, since the resumption of regular interest rates on student loans, there has been much chatter about the cost of higher education studies in the U.S. Student financers have since been offering anywhere from 3% to 14% interest rate depending upon the lenders and the study program.
During 2013, a policy was enacted in which the government had set fixed interest rates on student loans issued for the upcoming year based on the interest rates on the 10-year U.S. Treasury notes. This has resulted in the drop of interest rates for the past consecutive to years. As a result, the 4.29% on Stafford loans issued for the 2015 to 16 year dropped to 3.76% for the upcoming 2016 to 2017 year.
U.S. Prime Interest Rate:
For the stability of the financial market, a stable prime lending rate is essential. However, since the interest rate can’t be maintained at a particular level indefinitely, lenders figure this variable into their financing while giving out loans. All financial institutions use the U.S. Prime Rate while providing lending services to their borrowers. The Bank Lending Rate in the U.S. has remained constant for the past several years, hovering at around 3.5%. This rate isn’t a law, but a recommendation for financial institutions to provide their lending services.
These lending figure all point towards a decrease in the cost of borrowing. This combined with the improving economic stability provides a fertile field for borrowers to feel more secure to take out loans.