While the credit crunch is clearly dampening consumers' borrowing power, the lending well hasn't run completely dry. Lenders still want to lend, but borrowers will need to dig deeper to get the best rates.
The Federal Reserve probably plays the most visible role in influencing rates, as it orchestrates money supply. Contrary to popular belief though, when the Fed trims rates, the effects don't necessarily trickle down to every credit and loan product.
Between September 2007 and April 2008, the Fed cut the federal funds rate 3.25 percentage points, from 5.25 percent to 2 percent. Yet over that time frame, the average 30-year fixed-rate mortgage actually rose, according to Bankrate data.
Rates on other loan products did fall, including those for home equity lines of credit, or
HELOCs, auto loans and variable rate credit cards. Their rates are pegged to the
prime rate, which moves in tandem with the federal funds rate.
Knowing what influences interest rates may help you negotiate a better deal the next time you need to borrow money.
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