What the Federal Reserve Interest Rate Hike Has to Do with Millennials and Poor Folk

 

 

The quarter-point interest increase make all kinds of payments just a little more expensive. Essentially, these interest rate increases are  passed on to borrowers  through higher rates on things like credit-card debt, your student loan payment, your car payment and if you are in the market for a loan, mortgage or refinancing, the cost of borrowing money will become more expensive.

So how does all this work?

The banks borrow money from the federal reserve so they can turn around and lend us money in the form of credit and loans. This gives us folks at the bottom of the pyramid enough cash to keep the economy rolling.

 

The “fed funds rate” determines the interest rate that banks borrow short-term cash. Like the local payday lender, the fed can determine the interest rate at which they want to charge banks for borrowing money from them.

 

A long list of the biggest banks have already upped their interest rates for “prime” credit (a.k.a. folks with good credit scores) which means those of us in the “subprime category” (read most of us) are going to get hit even harder. There are 5.9 million people with subprime credit compared to less than a million people with “prime” credit, so yeah poor folks pay more for almost everything, especially big ticket items.

FYI: [subprime = 300-600 credit score; near prime = 601-660; prime plus = 721-780; super prime = 781-850]

 

According to TransUnion, average borrowers will see an $18 increase to “revolving debt” i.e. credit cards.

 

Numbers man Frank Nothaft, economist at CoreLogic, said fixed-rate mortgages will likely increase over the next year to 4.50%.  Moral of the story, if you are one of those super millennials that are ready to buy a home or just looking to refinance your student loans, do it sooner than later.