Will Personal Loan Interest Rates Come Down in 2024?

With the Federal Reserve raising interest rates at a rapid pace in 2022 and 2023, the cost of consumer credit has risen significantly. And this is certainly true when it comes to personal loans. According to the Fed's own data, the average interest rate on a 24-month personal loan increased from 9.38% in 2021 to 11.87% in 2023, a difference of nearly 2.5%.

However, with many experts predicting that the Fed is going to start cutting interest rates sooner rather than later, is there relief in sight for would-be personal loan borrowers? Or will rates stay elevated for the foreseeable future?

The Federal Reserve and personal loan interest rates

To be perfectly clear, there isn't a direct relationship between the benchmark interest rates set by the Federal Reserve (specifically, the federal funds rate) and personal loan interest rates. Lenders can set their own rates, and each lender has different underwriting processes. It's not uncommon for the same person to apply to several different personal loan companies and get interest rate offers more than 5 percentage points different from one another.

Having said that, personal loan interest rates and other consumer interest rates tend to move in the same direction as the Fed's benchmarks. We already discussed personal loan interest rates, but as another example, the average interest rate on a 72-month new auto loan increased from 4.82% in 2021 to 7.89% last year. It is no secret that mortgage rates have risen significantly as well. During the same period, the benchmark federal funds rate went from virtually zero to a target range of 5.25%-5.50%, where it currently sits.

The latest projections

Four times per year, the Federal Reserve board members release their projections for future interest rate movements. These are certainly not binding, but they can give us a good sense of where the people who set monetary policy see things heading in the future.

According to the most recent Federal Reserve projections (made in December 2023), the median expectation is for three quarter-percentage-point cuts to the federal funds rate in 2024.

Investors seem to be expecting the same. According to the CME FedWatch tool, the median expectation is for the Fed to make its first rate cut of the year in June, and for a total of three rate cuts throughout the year, for a total reduction of 0.75%. And while nobody has a crystal ball, derivatives markets are pricing in no chance that rates will be higher at the end of 2024 and just a 0.6% chance that the Fed won't cut rates at all.

Will personal loan interest rates fall in 2024 and beyond?

To sum it up, unless something dramatic happens, such as an unexpected inflation spike, there's a high probability that the Federal Reserve will start to cut interest rates later this year. And if that happens, it would be surprising if personal loan interest rates didn't follow. However, keep in mind that there's no guarantee that the Fed will actually lower interest rates, and even if it does, remember that there isn't a direct relationship with personal loan interest rates, so there's no guarantee rates will turn lower.

How can you save on a loan regardless?

No matter what happens with personal loan interest rates as a whole, there are steps you can take to make sure that you get the best possible rate you can. For one thing, if your credit score isn't exactly top-notch, take steps to boost your score. These include paying down existing debt, and disputing errors on your credit report. You can have a significant impact quicker than you might think.

And it's an absolute must to shop around. Most personal lenders will allow you to check your personal rate offers without a hard credit pull, and with a quick and easy pre-approval form. Even if rates don't fall this year or next, you still have the power to improve your chances of saving money on a personal loan.