VIRGINIA BEACH, Va. — Consumers can add "loans" to the running list of things that cost a little extra these days.
The Federal Reserve announced this week it would raise interest rates by a single quarter-point; meaning, borrowing money just got more expensive and paying off debt could be more of a burden.
According to the most recent Consumer Price Index, America's 12-month inflation rate sits at almost 8%, a high not seen since 1982.
In response to this higher demand, the Federal Reserve aims to drive down demand by making it more costly to use lines of credit. Credit card bills, home and small business loans are just some of the things impacted by this rate increase.
“The reality is that interest rate increases and financial conditions hurt the people that can least afford them," explained Andrew Root, an assistant professor at Regent University’s School of Business and Leadership.
Root said auto loans are a particularly interesting sector to look at when it comes to how demand could be effected.
“They're interesting because the price of a used car is up 30-40% compared to this time last year, that’s never happened in the past," he said.
According to Root, one specific example of the impacts to the housing market goes like this: if someone were to invest $100,000 toward a home equity line of credit, because of increased interest rates, in one to two years, that person could pay $1,000 to $2,000 more to hold the same line of credit balance (on top of the interest they were already paying in the first place).
“It’ll slow down all aspects of the housing market. Current borrowers will feel an increase immediately, new borrowers will apply for loans and will qualify for slightly lower mortgage value than before yesterday," Root said.
While drastic monetary changes won't be felt immediately, this is only the beginning of the process.
The federal government plans to raise them again, slowly and incrementally, several times over the next year.