Tuesday, 16 December, 2008
The Fed’s three-quarter of a point cut came in the “Fed Fund” rate.
That’s the short term rate banks pay other banks to borrow money.
Samford University Professor Lowell Broom says because of that, consumers will see lower costs to borrow money in many different kinds of consumer loans, personal loans and others.
“For individuals who have equity lines of credit that are tied to the Federal Reserve lending rate, they will see a reduction in the rate of interest in home equity lines of credit,” he said.
The only problem, Broom says, is despite falling interest rates, many banks are still unwilling to lend to customers with less than perfect credit scores.
He says banks are holding onto their cash, bracing for another wave of the mortgage crisis.
“Those individuals who have in the past few months have not had access to credit will not be affected by this. They will still not have access to credit.”
Long-term loans like mortgage rates, already at historically low levels, are not likely to be directly affected by this rate cut, either.
In some ways, Broom says, the Fed’s cut is an attempt to calm the fragile psyche of consumers, who keep the U.S. economy running.
“What the Fed’s action today seems to indicate is that they are willing to do whatever necessary to not allow our economy to collapse or continue in a recession for an extended period of time,” Broom said.
Many banks slashed their prime rates - the rates they give their best customers - to 3.25% after the Fed’s announcement.
Dr. Broom adds if you are able to get credit, now is a great time to buy.
Prices are low on everything from cars to real estate, and borrowing money costs less than it did Monday.
Source: http://www.nbc13.com/
