Personal Finance
Credit card APRs fell by just 0.13% after Fed rate cut, report finds
Collectively, Americans are having a harder time keeping up with their credit card bills. Part of the problem: Carrying a balance comes at a high cost.
Credit card rates spiked along with the Federal Reserve’s string of 11 rate hikes starting in March 2022. The average annual percentage rate rose from 16.34% at that time to more than 20% today — near an all-time high.
Those APRs are edging lower — but not by much — now that the Fed dialed back interest rates by a half point on Sept. 18 and is expected to cut its benchmark rate again when it meets next week.
More from Personal Finance:
28% of credit card users are paying off last year’s holiday debt
Holiday shoppers plan to spend more while taking on debt
2 in 5 cardholders have maxed out a credit card or come close
Most credit cards have a variable rate with a direct connection to the Fed’s benchmark.
Yet, a recent CardRatings.com survey found that fewer than half — 37% — of the credit cards surveyed changed their rates in response to the Fed’s September cut as of the beginning of the fourth quarter.
Altogether, the average credit card interest rate fell by just 0.13% from the previous quarter, the report found.
“When the Fed makes a rate cut, credit card rates often don’t fall by as much,” Jennifer Doss, executive editor and credit card analyst at CardRatings, said in a statement.
“One reason is that credit card companies are being cautious. After all, the Fed tends to cut rates when the economy is slowing. When that happens, lending to consumers usually gets riskier.”
Even with more rate cuts expected to come, consumers carrying a balance on their credit cards are unlikely to feel much relief, experts say.
“Interest rates took the elevator going up, they are going to take the stairs going down,” said Greg McBride, chief financial analyst at Bankrate.com.
Rather than wait for more small APR adjustments in the months ahead, there are other ways to tackle high-cost variable rate debt.
Make paying down credit card debt a priority
“It’s always a great time to prioritize paying down credit card debt, no matter what the Fed decides,” said Sara Rathner, credit cards expert at NerdWallet. “It’s not always possible to pay off a large balance quickly, but any extra money you can put toward your debt each month can make a difference over time.”
Regardless of the Fed’s next moves, “look at where you are,” said Rod Griffin, senior director of consumer education and advocacy for Experian.
Cardholders who pay their balances in full and on time every month and keep their utilization rate — or the ratio of debt to total credit — below 30% of their available credit, benefit from credit card rewards and a higher credit score. That paves the way to lower-cost loans and better terms.
Cardholders carrying debt from month to month put themselves at risk of getting trapped in an expensive debt cycle.
Renegotiating high-interest credit card debt is a good bet, Griffin said. “There are better rates available.”
“If you are not getting the rates you want, shop around,” he said. “Use your power as a consumer to move on to a different provider.”
Alternatively, borrowers can call their card issuer and ask for a lower interest rate on their current card. The average reduction is about 6 percentage points, a 2023 LendingTree survey found — and 76% of cardholders who asked for a lower APR got one.
For consumers, it’s important to speak up, according to Griffin, and say to their lender, “I can do better elsewhere, or you can do better for me.”
But ultimately, a key factor that determines the credit card interest rate that you pay is your credit score, CardRatings’ Doss said. “Credit card companies charge higher interest rates to make up for higher risk. So, customers with low credit scores tend to pay higher interest rates.”
Professionalstudioimages | E+ | Getty Images
President-elect Donald Trump has been vocal about potentially raising tariffs on imported goods, which experts say could bump up car prices.
Trump has talked about implementing an additional 10% tariff on Chinese imported goods, as well as adding tariffs of 25% on all products from Mexico and Canada. On Friday, Trump told the European Union it must reduce its trade gap with the U.S. by purchasing oil and gas, or it could face tariffs as well.
Tariffs are taxes on imported goods, paid by U.S. companies that import those goods.
Tariffs have the potential to disproportionately affect auto prices because materials used to assemble a vehicle come from different parts of the world. Some components even cross U.S. borders multiple times before they even get to the factory, according to Ivan Drury, director of insights at Edmunds.
“There’s no such thing as a 100% American vehicle,” said Drury. “There’s so much complexity, even though it’s a seemingly straightforward thing.”
Component tariffs could add $600 to $2,500 per vehicle on parts from Mexico, Canada and China, according to estimates in a Wells Fargo analyst note. Prices on vehicles assembled in Mexico and Canada — which account for about 23% of vehicles sold in the U.S. — could rise $1,750 to $10,000.
More from Personal Finance:
Some shoppers prefer retail store credit cards despite 30% APRs
Paying down debt is Americans’ top financial goal for 2025
What the third Fed rate cut in 2024 means for you
If tariffs are enacted, the sticker price drivers pay at the dealership will eventually go up, experts say. But carmakers and sellers may have to bear some of the costs, too.
“The cost will spread across all stakeholders: automakers, dealers and consumers,” said Erin Keating, executive analyst at Cox Automotive. “No one company is going to dump all of that expense directly on their consumers.”
Here’s what to know.
Why cars may incur more tariffs than other goods
The automotive sector’s supply chain is unique because some pieces move back and forth across international borders while the part is built and assembled, experts say.
“People don’t really know where their vehicle is built and how it’s assembled from parts across the entire globe,” Drury said.
Take a steering wheel, for example. Electronic sensors or other parts that go into the steering wheel come to the United States for assembly from countries like Germany, Drury said. The steering wheel is then sent to Mexico for stitching, only for it to come back to the U.S. to be installed in the vehicle.
Vehicles could have “incrementally more tariffs applied” compared with other products, given the supply chain, said Keating.
If tariffs add to the manufacturing cost, automakers can’t risk passing on the entire tab to the shopper, experts say.
Carmakers and dealers may have to “bear some of the burden,” Drury said. “If you look at how expensive vehicles could get with those tariffs, there’s no way they’re going to be able to move as many [cars].”
There is, however, a silver lining — a lot of cars that will be on the lots in early 2025 have already been assembled or are currently being made, further adding to next year’s available supply, Keating said.
What car shoppers can expect in 2025
Car shoppers in 2025 are unlikely to see prices that factor in new tariffs, experts say. Baseline prices will be about the same, and dealers are likely to offer more incentives to pull in buyers next year.
The average transaction price for new cars is expected to hover between $47,000 and $48,000, according to Keating. As of November, the average price was $48,724, 1.5% higher from a year before, per Kelley Blue Book data.
While the average price is higher than pre-pandemic levels, “the good news is it’s relatively stable. We’re not vacillating all over the place,” Keating said.
As of December, average auto loan rates for new cars are at 9.01% while borrowing costs for used vehicles are at 13.76%, per Cox Automotive. The average rates for both types of loans are down about a full percentage point from a 24-year high earlier this year.
“We expect that consumers may see even lower rates by spring, which would create the most normal and favorable buying environment since 2019,” Jonathan Smoke, chief economist at Cox Automotive, wrote in the report.
For now, experts are optimistic for the auto market next year as inventory and deal opportunities grow.
“Tariffs or no tariffs, there will be more incentives,” Drury said.
Student loan forgiveness plans withdrawn by Biden administration
Art of Accounting: A template for hiring an experience manager
Top tax issues for financial advisors in 2024
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
Are American progressives making themselves sad?
U.S. Beneficial Ownership Information Registry Now Accepting Reports
-
Economics1 week agoKaren Friedman Agnifilo: A Champion of Justice and Legal Expertise
-
Leaders1 week agoAliko Dangote – The Architect of African Industrial Transformation
-
Accounting1 week agoMastering Petty Cash Management: Best Practices for Efficiency and Control
-
Technology1 week agoThe Rise of Generative AI and Its Applications: Transforming Industries
-
Economics1 week agoTulsi Gabbard delights in provocation
-
Economics1 week agoHow to Mitigate Inflation’s Impact on Low Income Earners
-
Accounting1 week agoAICPA releases accounting and valuation guide for business combinations
-
Economics1 week agoIs America’s opioid epidemic finally burning out?