Fed Cuts Interest Rate to Zero - Good News for Borrowers?

[john_pifer]

Good news for those shopping for auto loans? Sunday, March 15, the Fed cut the benchmark interest rate to zero. I was wondering if any of our financial gurus here could shed some light on how this could affect auto and other consumer loans. Ive often heard about the Fed changing the benchmark interest rate and wondered what effect this has on consumer loans. I'm honestly not that educated on this. I'm assuming rates will drop. But how soon? When I borrowed the money to buy my new WRX in 2016, I was able to secure 1.99% @ 72 mos from my credit union here in Nashville. Recently when my sister and BIL were in the market, I checked, and rates were up a bit from that - more like around 3-3.5% were the best I could find. So, what will the effect be, and how soon will rates for consumer loans drop as a result of this?

 

[BMWTurboDzl]

On an inflation adjusted basis money has been essentially "free" for a decade.

 

[Hombre909]

To answer your question, yes. Rates will bottom out but shop for the best loan as each lender will vary with what they charge.

 

[Donald]

This gives the fed no maneuvering room. It seemed a reaction to pressure rather than the right thing to do.

 

[zmelli]

Well nobody bought the 30yr notes, bad news. This means no 30yr notes to back up any loans, so this is not very good news.

 

[zmelli]

Originally Posted by john_pifer

Good news for those shopping for auto loans? Sunday, March 15, the Fed cut the benchmark interest rate to zero. I was wondering if any of our financial gurus here could shed some light on how this could affect auto and other consumer loans. Ive often heard about the Fed changing the benchmark interest rate and wondered what effect this has on consumer loans. I'm honestly not that educated on this. I'm assuming rates will drop. But how soon? When I borrowed the money to buy my new WRX in 2016, I was able to secure 1.99% @ 72 mos from my credit union here in Nashville. Recently when my sister and BIL were in the market, I checked, and rates were up a bit from that - more like around 3-3.5% were the best I could find. So, what will the effect be, and how soon will rates for consumer loans drop as a result of this?

Problem is more people are going to need to give their car back to the bank if they get laid off. Not sure how all this is going to pan out.

 

[supton]

I thought most of the 2.9% APR and lower auto loans were through the banking arm of the manufacturers. They can afford to make nothing on the loan if it moves units and keeps the production line going and keeps them in the green. That said, I'm starting to think we'll see those again, and soon.

 

[Malo83]

How does this affect credit cards?

 

[Mad_Hatter]

This was a coordinated rate cut with other central banks signaling a growing fear that the global economy is headed towards a recession.

 

[SwampSurvivor]

It's just the cost of the money that you borrow. The banks will still have interest so they can keep making money. I expect they are going to see a ton of defaulting.

 

[csandste]

Got more into cash in 2018-- still enough stock funds in there to drop thirty or forty thou a day (didn't even look today, enough stress). I do have a number of low interest CD's coming due. I'm sure they'll be paying negative interest like Europe when reinvested. Have paid off mortgages on two of my three properties. Last one is a floater running about 4.5 percent annually. Gonna pay the last seven thou off on that in the next month or two. Guess Dave Ramsey would be proud.

 

[Vern_in_IL]

Originally Posted by Donald

This gives the fed no maneuvering room. It seemed a reaction to pressure rather than the right thing to do.

Negative interest rates. (GULP!)

 

[CKN]

You are not going to have people borrow money in a declared pandemic regardless of the interest rates. Don't see how this was a great move-honestly.

 

[miden851]

it is same idea as back in 2008; it takes the time to reap its fruits... see you 1 year!

 

[Mad_Hatter]

Originally Posted by Vern_in_IL

Originally Posted by Donald

This gives the fed no maneuvering room. It seemed a reaction to pressure rather than the right thing to do.

Negative interest rates. (GULP!)

That would send the market tumbling. It would be the Feds admitting we're headed to a recession. And besides, negative rates has a mixed history of working/not working. We need to face it, this event is gonna change life and habits for a long time and the markets globally will reflect that.

 

[fdcg27]

There is an old expression for this. It's called "pushing on a string". The dramatic decline in economic activity worldwide isn't of a financial cause, so countercyclical monetary or fiscal efforts are not likely to yield any result.

 

[Jimzz]

Originally Posted by zmelli

Problem is more people are going to need to give their car back to the bank if they get laid off. Not sure how all this is going to pan out.

Yea if you have cash and a job in good standing then later this year might be great to buy things (cars, house, stocks, etc...). But for others on the other end it will be a very trying time.

 

[john_pifer]

Originally Posted by CKN

You are not going to have people borrow money in a declared pandemic regardless of the interest rates. Don't see how this was a great move-honestly.

Why do you say that? People still need to borrow money to buy cars and houses, just to name a couple of the biggest purchases people make.

 

[user52165]

There was an open house this past weekend for a nice house for sale on my block. Couldn't believe how many people were there especially considering the clamp down. And it was raining........ rare here.

 

[joekingcorvette]

Banks can borrow out cheap money then repo cars and trucks so they can lose more money. Doesn't make sense to me. The older people who have CD income won't be buying anything because their extra income will be reduced.