How Rising Interests Impact You
Aug 25, 2023
Have you ever wondered why interest rates are such a hot topic? You hear about interest rates in the news and people talk about them in finance and money management courses. Interest rates have a high impact on your financial health and available money! In this guide, we're going to explain how rising interest rates can impact your finances and, therefore, your life.
1. Borrowing Money Gets Costly: When interest rates go up, the cost of borrowing money goes up too. Imagine you want to buy a car or get a loan for college. If interest rates are high, the extra money you have to pay back (called interest) also gets bigger. For example, a car loan for $30,000 at 6% interest may have a monthly payment of $579.98 (total paid amount at the end is $37,799.04). That same loan with an interest rate of 15% will have a monthly payment of $713.70 (total paid amount at the end is $42,821.87). When interest rates increase, borrowing money becomes more expensive.
2. Spending Might Slow Down: Think about how you spend money. When things cost more because interest rates are higher, people might not be interested in buying as much. This can cause a chain reaction – businesses might sell less, and the whole economy might slow down.
3. Saving and Investing Can Change: Saving your money in a bank account can get better when interest rates rise because banks might pay you more interest on your money. But, on the flip side, some other ways of investing might not be as attractive when interest rates are high.
4. Houses and Interest Rates: If you're thinking about buying a house someday, you'll want to keep an eye on interest rates. When rates go up, getting a mortgage (a loan for buying a house) becomes more expensive. The higher costs make it harder for people to buy homes, and the housing market tends to slow down.
5. Loans that Can Change: Some loans, like the ones for homes or even loans where you use your home's value as collateral (like Home Equity Lines of Credit or HELOCs), can have interest rates that change. So, if rates go up, your monthly payments can increase too.
6. Credit Cards and Interest Rates: If you have a credit card, the interest you pay on it might go up when interest rates rise. That means if you don't pay off your credit card bill every month, it could cost you more over time.
Rising interest rates are like a puzzle with many pieces. They make borrowing more expensive, might slow down how much people spend, and can even affect how you save and invest. If you're thinking about money, especially if you're going to borrow or invest, it's good to know how interest rate changes can impact your financial plans.