The Federal Reserve announced a half-percentage point, or 50 basis points, rate cut at the end of its two-day meeting on Wednesday. And of course, some Americans will want to make the most of the central bank’s first rate cut since the early days of the Covid pandemic.

“How quickly the impact of lower interest rates is felt depends on whether households have variable or fixed financing rates,” says Stephen Foerster, a professor of finance at the Ivey Business School in London, Ontario. Some adjust relatively quickly, others make no adjustment at all.

Unless you can refinance.

According to a recent report from NerdWallet, 18% of consumers said they plan to refinance a loan once interest rates drop. The financial services site surveyed more than 2,000 American adults in July.

While it may make financial sense to benefit from lower interest rates, experts say other considerations often need to be made depending on the type of loan.

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First, while mortgage rates are partly influenced by Fed policy, they are also tied to Treasury yields and the economy, so mortgage rates can continue to fluctuate.

In addition, most homeowners are still paying a lower interest rate on their loan than they would likely get if they refinanced now – with the exception of those who bought a home within the last two or three years, says Jacob Channel, senior economic analyst at LendingTree.

According to a 2023 analysis by Redfin, about 82% of homeowners are locked into interest rates below 5%, and 62% have interest rates below 4%.

“There is no one-size-fits-all rule about when to think about refinancing,” Channel said. “Some people will tell you not to think about refinancing until you get an interest rate that is at least 50 basis points lower than what you currently have. Others will say you should wait until you get an interest rate that is 100 or more basis points lower.”

Other factors to consider include your credit score, which ultimately determines what interest rate you qualify for, and closing costs, which typically range between 2 and 6 percent of your loan amount when refinancing, according to LendingTree.

“There is no one-size-fits-all answer to the question of whether or not someone should refinance their mortgage,” Channel said.

When it comes to credit card debt, the math is a little simpler.

Since most credit cards have a variable interest rate, there is a direct link to the Fed’s benchmark. As the rate hike cycle progressed, the average credit card interest rate rose from 16.34% in March 2022 to over 20% today – approaching an all-time high. These APRs will now drop slightly, but not significantly.

No matter what the Fed does, refinancing high-interest credit card debt is a smart move, according to Matt Schulz, chief credit analyst at LendingTree.

“A 0% transfer card is probably your best bet, assuming your credit score is good enough to get one,” he said. “A low-interest personal loan can also be a good option.”

Alternatively, borrowers can call their credit card issuer and ask for a lower interest rate on their current card. The average cut is about 6 percentage points, a LendingTree survey found. “That’s a 25% cut to 19% and has a far greater impact than anything the Fed will do,” Schulz said.

Although interest rates on auto loans are fixed, the Fed’s actions will cause interest rates on new car loans to fall.

However, for those who already have debts from a car loan, debt consolidation is not a given.

“Interest on an auto loan accrues more at the beginning of the loan term, so if you’ve had the loan for a year or two, you’ve already paid quite a bit of interest,” said Ivan Drury, director of insights at Edmunds. “Even though lowering your interest rate will lower your monthly payment, it could result in you paying more interest over the life of the loan.”

In addition, “if you’re paying mostly interest, you may not have enough or any equity to really take advantage of the lower interest rates,” he said, unless you put more money into refinancing and take out a smaller loan.

For consumers, improving their credit scores may be more beneficial as it could pave the way to much better loan terms, he said.

Finally, it may make sense for borrowers of variable-rate student loans to consider refinancing when interest rates fall.

“Borrowers may choose to refinance their loans to take advantage of lower interest rates or to improve their credit score, which can also result in lower interest rates, or if they want to switch lenders,” said higher education expert Mark Kantrowitz.

However, according to Kantrowitz, anyone who converts a government loan into a private student loan loses the security features of government loans, such as deferments, payment deferrals, income-dependent repayments, and the possibility of debt forgiveness and repayment.

And as with other types of refinancing, extending the loan term will ultimately result in higher interest on the balance.

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