What is the prime rate?
The prime rate, sometimes also referred to as the base or reference rate, is a benchmark interest rate used by institutions for pricing business and other credit. Institutions either set this rate internally or use a published rate (e.g., the prevailing prime rate as reported by the financial press). An organization may change its prime rate in response to changes in market conditions. Interest rates for most consumer loans are generally higher than the prime rate and are determined by the particular financial institution making the loan.
Mostonline banking consumersare aware of the term “Prime Rate,” but don’t understand its definition, except as a measurement or index from which other interest rates are compared. Actually, this understanding is important and gives potential borrowers good clues on how interest rates on autos, equity, and personal loans are trending. Typically, when the prime rate goes down, other loan rates tend to decrease. Conversely, as the prime rate increases, consumer loan rates follow. The prime rate, however, is really the elusive annual percentage rate that is offered to the best commercial loan borrowers. Prime rate is actually not the bedrock of all interest rates, contrary to some general perceptions. The “discount rate,” as set by the Federal Reserve, is “prime” index rate that tends to drive all others, from savings to loans. The prime rate will be a bit higher than the Federal discount rate and many lenders will price their other loans using some percentage above prime. Lenders make thi
The Index in effect for each Billing Cycle shall be the higher of: (i) the “Prime Rate” of interest appearing in the “Money Rates” section of The Wall Street Journal published on the 8th business day prior to the last day of such Billing Cycle; or (ii) the highest “Prime Rate” of interest appearing in the “Money Rates” section of The Wall Street Journal published during the previous 60 business days prior to the 8th business day to the last day of such Billing Cycle.
The prime rate (sometimes also referred to as the “base” or “reference” rate) is a benchmark rate used by institutions for pricing business and other credit. Institutions adjust this rate from time to time in response to changes in market conditions. Institutions may set this rate internally or may adopt as their own a published rate (for example, the prevailing prime rate as reported in the financial press). Interest rates for most consumer loans are generally higher than the prime rate and are determined by the particular financial institution making the loan. A comprehensive explanation of various commercial and consumer interest rates, “Interest Rates: An Introduction,” is available at Federal Reserve Bank of New York website. Prime interest rates going back to 1929 are available on the Research Departments website of the Federal Reserve Bank of St. Louis located. Current and historical data on most interest rates are available at the Federal Reserve Board website.
