Are Lower Interest Rates a Bad Sign For The Loan Market?
PR Log - Sep 04, 2012 - Every single loan has interest. Whether it be an auto loan, home mortgage, a personal loan or a credit card. They all have interest. The good news for consumers is that interest rates are currently low. Banks and other financial institutions have lowered their interest rates to help create a demand in spending. These lower interest rates have helped, and consumers are spending more today than they were last month. Even though it may seem like lower interest rates are a great thing, there are still some negative aspects to lower interest rates.
What will happen when interest rates go back up? Consumers are enjoying the record low interest rates, and as a direct result they are currently spending and borrowing money again. Many financial analysts are wondering what will happen to consumer spending when interest rates go back up. It could start another recession that was worse than the one that occurred just a few years ago.
Lower interest rates discourage saving Lower interest rates have definitely driven consumers towards more purchases, but is also causing consumers to not save as much. Interest rates on savings and checking accounts have also been lowered. This makes it pointless for consumers to try and save money. Higher interest rates in this area of finance would be seen as a good thing.
“Saying that lower interest rates is a problem is not always true. Sure, it might be somewhat of a shock to consumers when and if interest rates start to rise, but until then, this is exactly the jump start that the economy has needed. Consumers are happily spending and borrowing money in record numbers. When consumers borrow money, they spend it. Spending money is exactly what lower interest rates are supposed to do, and it has helped the economy quite significantly.
Consumers are not stupid. They know a good interest rate when they see it. When interest rates were at an all time high just a few years ago, consumers decided that it was a better idea to avoid any high interest loans. These loans could have been credit cards, auto loans or home mortgages. The introduction of lower interest rates has rekindled consumer interest in all types of loans, and made them happy. Happy consumers like to spend money.”
Even though lower interest rates have jump started consumer spending, banks are not making as much money on the loans that they are offering. This is forcing banks to raise their prices in other areas. Banks are trying every angle that they can to make more money including inflating their fees. Even though interest rates are at an all time low, people are paying for the difference in other ways. They just don't realize it yet. Will consumers be happy when interest rates go back up? Only time will tell.