Every week we read about rising interest rates.
The big banks raise their "prime" interest rate that's the rate they charge their biggest industrial and commercial customers for loans . And the Federal Reserve Board keeps upping the discount rate for banks, which applies even more pressure to raise interest rates another notch.
So you're not a big industrial or commercial buyer. You're just the average consumer. What does this interest-rate game mean to you?
If you're planning to buy a house, you'll find that mortgage rates have been moving up to double-digit levels, and in some cases, lenders are being very choosy about who "qualifies" for a mortgage.
In states in which mortgage rates already have hit limits set by law, very few home buyers can get loans. And, even in states in which mortgage prices haven't hit the limit (or there are no limits), you'll find that lenders are demanding more downpayment, and they want borrowers who are top-rated risks.
Home buyers continue to grab high-cost mortgages because they know it's hopeless to wait for interest rates to come down. While they're waiting, housing costs are going up to 10 percent a year, or more.
In the case of automobile tons loans, you'll find you very little upward movement in rates. This is because automobile loans were set fairly high when other interest rates were much lower, and lenders don't like to change them when interest rates are higher. Auto loans are running at 10 percent plus and won't change too much.
Lending rates for appliance purchases are remaining the same, too. The interest rates were set high, 18 percent a year, and have remained stable. At 18 percent a year, lenders can afford to give a little when other rates are rising.
However, auto and appliance dealers say they're spending more money on the loans they need to finance their inventories. While the consumer is still paying about the same as last year, dealers are paying more for their inventory loans.
This means dealers will be trying to pass on these additional costs to buyers through higher sticker prices or by eliminating discounts. The same goes for manufacturers and people who sell services (transportation, construction and the like). As they pay more for the money they borrow, they pass it on to dealers. And the dealers pass it on to you-know-who.
With personal loans and small business loans finance companies and banks are finding that they're beginning to hit the limits set by some states. Some major finance companies, for example, are beginning to tighten up on their criteria for loan applicants. You'll see more and more borrowers turned away over the next two or three months. The money will go to the lenders' biggest and best customers.
Maybe the money sqeeze will have a beneficial effect, as well as a negative one. Customers today are borrowed up to the hilt. Many families have at least 20 percent of their income in hock to a variety of loans. Economists are wondering whether we haven't borrowed too much and ought to pull back a little.
As for the future, the money experts say we can look for higher interest rates well on into next year. Where there isn't a top limit set by state law, mortgage rates could push up close to 11 percent. Can you believe it?
In more and more cases, you'll find lenders tightening up loan standards, making it harder for people to borrow. Fighting inflation isn't easy, and this is all part of the long-term withdrawal pain.
Q: It sure isn't easy to buy a $1,000 Treasury bond. I called several banks and they weren't much help. How can you buy these smaller government securities (I want it because of its high interest rate)?
A: From time to time the government is required to offer Treasury bonds in $1,000 units. Usually, the minimum is $10,000 or even higher. Your newspaper might note when these offerings will be made. You can also get information from your nearest Federal Reserve Bank. The U.S. Treasury has a free booklet, "United States Securities Available to Investors" (from P.D. 800-A), available from: U.S. Treasury, Commissioner of Public Debt, Washington, D.C. 20026.