Key takeaways
- Tariffs won’t have any direct impact on personal loans or personal loan rates.
- Banks may tighten personal loan standards for bad credit if the economy worsens.
- Personal loans used for debt consolidation could improve your scores and save you money on other financial products to offset tariff-induced price increases.
- It doesn’t make sense to borrow money to borrow money to buy goods to avoid potential price increases from tariffs.
If you’re thinking about taking out a personal loan amid all the confusion surrounding how tariffs could affect your budget, there’s good news: personal loans aren’t likely to be directly impacted. Annual percentage rates (APRs) for excellent credit short-term personal loan rates have slowly dropped, although average rates have been creeping up.
There is a chance it could get more challenging to get an unsecured personal loan if the economy gets rocky. You may want to consider a personal loan to tighten up your finances with a lower-rate personal loan — especially if you’re struggling with a handful (or more) of high-interest credit cards.
How could personal loans be affected by tariffs?
Tariff policies won’t have any direct effect on personal loan rates. That said, if the economy gets weaker, it could be tougher to take out credit products.
In an economic downturn, even before a recession is recognized or declared, lenders will tighten credit, especially for unsecured loans and for borrowers with weaker credit.
— Greg McBride, Chief Financial Analyst for Bankrate
If banks begin to tighten lending standards, people who are financially strapped may not be able to borrow money for debt consolidation or emergencies. McBride also cautions against panic buying to avoid possible price increases on goods and services due to tariff policy changes.
“With so many Americans short on emergency savings, and with credit card debt at record highs, the idea of accelerating purchases to avoid a possible and ever-changing future tariff — especially if you have to borrow to do it — isn’t a marker on the pathway to financial security,” McBride says.
How personal loans could help you from the negative effects of tariffs
Recent reports indicate that the American household could end up spending an extra $3,800 on everything from cars and electronics to clothing and furniture. Besides tracking your spending more closely and being more deliberate about major purchases, strategically using a personal loan could have some financial benefit if the price increase predictions are accurate.
Get you out of credit card debt
One surefire way to save some money on interest charges is to pay off your credit cards using a fixed-rate product. American credit card debt has reached a new record — $1.21 trillion according to the New York Fed — and average rates still hover around 20 percent. The average personal loan rate is a little over 12 percent.
Nearly 3 in 4 credit cardholders (71 percent) think they’ll pay the balance off within five years, according to Bankrate’s Credit Card Debt Report. A personal loan can make that a certainty since it’s an installment loan with a fixed schedule and definite payoff date. There’s no temptation to reuse a personal loan because you receive the entire balance in a lump sum.
Maximize your credit score using a personal loan instead of revolving credit
Paying off revolving debt is one way to offset tariff-related price increases by maximizing your credit score. Doing so can net you lower rates on everything from future debt, like mortgages and auto loans, to insurance products, like homeowners and auto insurance.
Even if you pay your bills on time, your credit utilization ratio — which measures how much revolving credit you’re carrying compared to your available credit — can tank your score if your balances are too high.
A personal loan doesn’t impact your credit utilization ratio. Using the funds from one to consolidate credit card debt could give your scores a major boost — as long as you don’t use the cards again after the balances are paid off.
Protect your home equity
A recent Bankrate survey of economists puts the odds of a U.S. recession over the next 12 months at 36 percent — a big jump from the 26 percent cited in the fourth quarter 2024 survey. Recessions are generally not good news for housing values, which makes your home equity a moving target that could continue to go up, or could suddenly go down.
Borrowing money against your home equity guarantees you won’t net as much profit when you sell your home. A personal loan isn’t secured, and you can use one to make home improvements to get the house show-ready without reducing your cash proceeds when the home sells.
Bottom line
For the most part, it will be business as usual for personal loan lenders, provided the economy doesn’t take a major turn for the worse. If, like many Americans, you’re struggling to build emergency savings, you probably don’t have extra income to pay down your credit cards.
A personal loan won’t lower the costs of price spikes from tariffs, but it could boost your credit scores. High credit scores can help you qualify for lower premiums on home and car insurance and lower APRs if you need to finance a large purchase in the future.
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