The Federal Reserve (the Fed) is the central banking system in the United States. The Fed’s main role is to support the economy and promote economic growth in a number of ways that affect everyday people. Key among them is setting interest rates that affect how much banks charge to borrow money. 

What is the impact of recent Fed decisions on personal loans?

In September 2025, the Fed lowered the federal funds rate to a target range of 4.00 to 4.25%.

The federal funds rate affects how much it costs banks to lend each other money. In turn, this impacts the interest rates lenders can offer to customers, and the type of rates you could expect to see on many types of loans. For example, if you’re applying for a personal loan now, you may be offered a slightly lower interest rate than you would have before this most recent update. 

Existing personal loans

If you have an existing personal loan, you probably have a fixed-rate loan. With a fixed-rate loan, the interest rate doesn’t change from month to month — the rate is set when you take out the loan and stays that way throughout the life of the loan. As such, the recent Fed moves probably won’t impact your personal loan costs. 

New personal loans 

If you’re looking to get a new personal loan or you have a variable-rate loan, meaning the interest rate changes with the market, you may be impacted by recent Fed decisions. A new personal loan may have a lower interest rate than it might have earlier this year, meaning you’ll pay less over the life of the loan. 

However, your creditworthiness — how reliable you are as a borrower and how likely you are to pay back a loan — also affects the interest rate you receive on a loan. If your credit is good, it could help you lock in an even lower interest rate. 

How will personal loans be affected by the Fed moving forward?

In the immediate term, personal loan interest rates may eventually decline compared to pre-September rates. However, it’s difficult to know how much personal loan interest rates will be impacted by Fed decisions in the future because the Fed typically keeps a tight lid on its decisions until it’s ready to announce them. If the Fed continues to lower the federal funds rate at its next meeting, personal loan rates may drop further, although it will likely take time to see any significant changes. 

What can you do to secure a favorable personal loan interest rate?   

If you’re considering taking out a personal loan soon due to an urgent bill, emergency expense or costly home repair, it may be worth taking advantage of the recent rate decrease and not waiting for further reductions. There are some other steps you could take to boost your chances of securing a more favorable interest rate:

• Consider a secured loan: A secured loan uses collateral — something of value that you own, like a car or house — to back the loan. As a result, the lender assumes less risk with a secured loan than an unsecured loan. A secured loan could be a good option if you have less-than-perfect credit, are looking for a higher borrowing amount or want to be approved for a lower interest rate. Just remember that if you can’t repay your loan, the lender has the right to take your collateral.
• Seek out a cosigner or co-applicant: If you have less-than-perfect credit, you may get a better interest rate if you have a cosigner or co-applicant with better credit. A cosigner agrees to be responsible for loan payments if the applicant fails to pay, but doesn’t have access to the loan funds themselves. A co-applicant (often a spouse or partner) will have access to the loan funds in addition to being responsible for loan payments. 
• Refinance an existing loan: If you have a personal loan with a high interest rate, you could consider refinancing your existing loan for one with a better interest rate. Refinancing a loan means that you replace your existing loan with a new loan with better terms. Having good credit will put you in the best possible position to refinance.  

Keep an eye on interest rates

While it can sometimes be difficult to fully understand how the Fed influences your finances, the decisions it makes are far-reaching. The federal funds rate can affect the interest rate of many types of loans, which in turn impacts how much your loan costs in the long run. However, you can’t necessarily wait for the Fed if your need is urgent. In that case, you may consider refinancing later when interest rates improve.

Do your research, stay informed about how personal loan interest rates are trending and make the best decision you can for your financial stability.  

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