Why Are Boat Loan Rates High Now?
If your looking to jump into a boat loan now, you’ll quickly realize the interest rates are a little high and significantly higher than what we saw during the COVID-19 pandemic. But why?
The Federal Reserve has repeatedly raised interest rates last year and this year to combat the rise in inflation that has reached 40 year highs. Inflation is defined as an increase in the price of products or services over a period of time. I think we have all seen a rise in product cost from our groceries, to gas, to lumber at Home Depot. Many factors are contributed to inflation, but many of them were a result of the COVID-19 pandemic.
It was a vicious cycle that happened to our economy. At the start of the pandemic, we started spending less because we were in lockdown or scared to socialize in the public. Believe it or not, we started saving a lot. When we got a little more comfortable socializing and restrictions were lifted, we started spending more and rapidly. And we had a lot of financial benefits to do so with rock bottom interest rates and government assistance programs.
However, businesses couldn’t keep up with the consumer spending and demand. At the same time, businesses were trying to rebound from the pandemic and facing challenges with staffing, shipping delays, and logistics. So what happened? The prices of products and services went up.
The Federal Reserve’s mathematicians think raising interest rates with slow soaring prices, but now we are all faced with a high cost of borrowing money. The simple explanation is that the Federal Reserve wants to lower the demand and lower the spending for products and services to go down. Higher interest rates in theory should translate into slower wage growth, less consumer spending, and lower prices. These higher interest rates make all our financial products more expensive such as mortgages, auto loans, credit cards….and boat loans.
The government has expressed to us that inflation is starting to cool down, so hopefully these rate hikes will stop. But this is why we are faced with higher rates right now.
Will rates come down? Yes, eventually rates will come down and there will be opportunities to refinance our boat loans. At Boatzon, we tell borrowers in a year we will offer a free service to reach out to borrowers to refinance when rates go down.