Should I Borrow Money With Interest Rates So High?

husband and wife reviewing interest rates with financial advisor

We all wish we had a crystal ball to see when interest rates will return to the historically low rates of the early post-pandemic era.  But they may not return to those levels for a long time (if ever).  “‘We will stay the course until the job is done,’ Fed chair Jerome Powell said in a news conference.  ‘We’re talking about a couple more rate hikes.’ He added that he does not see the Fed cutting rates in 2023 since the recent signs of slowing inflation are at an ‘early stage.’” 1

With inflation, some people are putting off large purchases and depositing monies into their savings accounts, which are finally yielding interest gains that people can see adding up.  However, at times, a purchase cannot be deferred; you may need money to pay for college tuition, purchase a home, finance a used or new car, or pay for an unexpected expense such as a home repair.  Sometimes, borrowing is your only option.

The biggest takeaway for borrowing money in a high-interest market is NOT adding to your credit card debt.  Most credit cards have variable interest rates that increase as the federal government raises its federal funds rate.  Paying off your credit card debt is a great way to avoid high and variable credit card interest while improving your credit score.

Whether you are applying for a personal loan, auto loan, or mortgage, credit unions can often lend money at more favorable rates than commercial or traditional banks.  Credit unions will very often waive application fees on their loan offerings.

Deciding if you need to borrow money for a purchase comes down to a few factors:

  • Can the purchase be deferred? Or will an opportunity be missed by not making a purchase?
  • If you postpone a purchase hoping rates go down, but they don’t, will you be forced to borrow at an even higher rate in the future?
  • Will a loan help consolidate your debt at a lower interest rate?
  • Can you afford a loan? Do not apply for a loan you cannot repay; this will affect your credit score and future borrowing power.

When borrowing money, it is essential to consider many factors:

  • Is the loan rate locked?
  • Can the loan be refinanced at any time, or are there repayment terms that must be followed to avoid penalties?
  • What are the repayment terms? Choose the loan term that fits your circumstances.
    • Can the loan be paid off early?
      • Are there any prepayment penalties?
      • Are all additional payments applied to the principal, thus reducing both the time and the total amount you repay?
    • Can the loan be extended?
    • Are there refinancing options if the rates drop? Are there costs associated with the refinance?
  • Are there fees associated with the loan, i.e., application, hidden, or penalty?
  • Is the loan secure or unsecured? For example, is collateral required to secure the loan?  This collateral could be forfeited if you default on the loan.

We at Welcome Federal Credit Union (WFCU) can help you navigate the course of these uncertain financial times.  Come to one of our branches and speak to a representative, or call us to learn more about our loan options.  You’re always welcome at WFCU!


Now is the time to get the best returns on your cash with higher interest rates on your Certificate & Money Market accounts!