Here's what will become more affordable due to the Fed's recent 25 basis point interest rate cut.

The Federal Reserve reduced its benchmark interest rate on Thursday, resulting in lower borrowing costs for credit cards, loans, and auto financing.

The rate decreased by 25 basis points, bringing it within the range of 4.50% to 4.75%. This is a result of a 50-basis point reduction in September, which lowered the rate from 5.25% to 5.50% for most of 2024.

The Fed reduced interest rates in September to stimulate the economy as inflation decreases and the job market weakens. Prior to that, the Fed had increased rates for two years to control inflation, which reached a high of 9.1% in June 2022. Since then, inflation has decreased to 2.4%, bringing it closer to the Fed's 2% target.

If current economic trends continue, Fed Chair Jerome Powell may indicate another 25-bps cut before 2025 in a September speech.

By the end of 2025, the benchmark rate is predicted to decrease to 3.4%, resulting in increased savings on borrowing costs.

The recent rate cuts could affect your monthly borrowing costs. The breakdown includes the 25-bps cut today and the 75-bps reduction since September, as estimated by Bankrate.

Credit cards

For borrowers with a $5,000 balance:

• Savings from today's 25-bp cut: $1 per month
• Since July 2024, the total savings from 75-bp rate cuts is $3 per month.

Personal loans

For a new $10,000, 3-year personal loan:

• Savings from today's 25-bp cut: $1 per month
• Total savings from 75-bp rate cuts since July 2024: $3 per month

Auto financing

On a new $35,000, 5-year auto loan:

• Savings from today's 25-bp cut: $4 per month
• Total savings from 75-bp rate cuts since July 2024: $12 per month

Home Equity Lines of Credit

On a $50,000 HELOC:

• Savings from today's 25-bp cut: $10 per month
• Total savings from 75-bp rate cuts since July 2024: $31 per month

Adjustable-rate mortgages

Although borrowers with resetting rates may still face higher rates than before, they might see a slight rate reduction depending on their loan size, credit score, and current mortgage market conditions.

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