Moody’s Downgrade: How it Impacts Consumer Loans

⁢ ‌ ⁢ Updated‍ May‌ 27, 2025
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Moody’s recent decision to downgrade​ the ‌United States’‍ credit rating ​is expected to affect consumer finances, potentially raising interest‍ rates on various loans. The⁣ downgrade, ‍driven by concerns over the growing federal budget‍ deficit, has already impacted bond prices, pushing yields higher.

Brian Rehling, ⁤head of global fixed income strategy at Wells Fargo Investment Institute, said‌ it’s⁢ difficult to shield consumers from the effects of a ‌credit rating downgrade. The yield on the 30-year U.S. bond climbed above 5%,while the 10-year yield surpassed 4.5% ​following the declaration.

the credit rating agency lowered the U.S. sovereign credit rating one notch, from Aaa to Aa1, on Friday. The agency pointed to the ⁣increasing federal budget⁣ deficit, exacerbated by potential‍ extensions of President ​Trump’s 2017 tax cuts, as the primary reason⁢ for the downgrade. Republicans’ attempts to make ⁤president Trump’s ⁣2017 tax cuts permanent⁢ threaten to increase⁢ the federal debt by trillions of dollars.

Ivory Johnson, a certified financial planner and founder of Delancey‌ Wealth‍ management, explained that a lower credit rating typically leads‌ to increased borrowing costs. “When our credit rating goes down, the expectation is that the cost of borrowing ‍will increase,” johnson ‍said.”A country ⁤represents a ‍bigger credit risk, the creditors will demand to be compensated ‍with higher interest⁢ rates.”

Ted‌ Rossman, ⁢a senior industry analyst at ⁢Bankrate, noted that Americans⁢ already struggling with high interest charges are unlikely to find relief soon. Economic uncertainty, particularly related to tariff policy, is keeping ⁤the ⁤Federal Reserve and manny businesses in a holding pattern.

“Downgrades can raise borrowing costs over time,” said Douglas⁤ Boneparth, president of Bone⁣ Fide⁢ Wealth.

Boneparth ​added that consumers could​ see “higher rates​ on⁢ mortgages, credit cards, and personal loans, especially if ⁣confidence in ​U.S.credit weakens further.”

Which consumer loans could see higher​ rates

Mortgage rates, closely tied to Treasury‍ yields, are ⁢expected to be⁢ directly affected. Rehling noted that “30-year mortgages are going to be most closely correlated, and longer-term rates​ are already moving higher.” as of May 16, the‌ average rate for a 30-year fixed-rate⁢ mortgage was 6.92%, while ‌the 15-year fixed-rate stood at 6.26%, according to Mortgage⁢ News Daily.

credit card rates and auto loan rates, while more⁣ directly influenced⁢ by the ⁤federal funds rate, are also indirectly ⁢affected by the⁢ nation’s overall financial health. Rehling stated that “the‌ fed funds rate is higher than it woudl be if the U.S. was in a better fiscal situation.”

The overnight lending ‌rate has been between​ 4.25% and 4.5% as December 2024. ⁣The average credit card⁣ rate is around 20%, mirroring ⁣fed actions, ​so “higher for longer” would keep the average ⁣credit card rate around 20%⁣ through the rest of the year, Rossman ⁣said.

Moody’s‌ was the last of the major credit rating agencies ⁣to rate the U.S. at⁢ the highest level. Standard &​ Poor’s downgraded the‍ nation’s ⁤credit rating in August 2011, and Fitch Ratings followed suit in ⁣August 2023. “We’ve⁤ been through this before,” rehling⁢ said.

Despite the downgrade, Rehling‌ emphasized that “The U.S. still maintains its dominance as the⁣ safe haven economy of the world, but it puts some ⁤chinks in the armor.”

What’s next

Consumers ​should closely monitor interest rates on mortgages, credit cards, and‍ auto loans in the ⁤coming weeks. Financial experts recommend exploring options for refinancing existing debt and carefully⁤ evaluating borrowing ‌needs ‌in light of potential rate increases. The​ long-term impact ⁤of ‌the downgrade will depend on the government’s response to the growing federal debt and the Federal Reserve’s monetary policy decisions.