The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's best customers consist of large corporations. The prime rate is also important for retail customers, as the prime rate directly affects the lending rates which are available for mortgage, small business and personal loans.
For example, if a bank is offering a home equity loan at "prime plus 5" and its prime rate is 6%, then the bank is essentially offering borrowers an 11% loan (6% + 5%) with an interest rate that will fluctuate along with the prime rate. It is important to remember that not everyone qualifies for a bank's prime rate - this rate is only for the customers least likely to default.
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