Prime Rate

Last Updated: Jun 7, 2019

Created By :

Last Edited By :

Created On :

The prime rate is the interest rate that commercial banks charge their most credit-worthy customers. The Prime Rate is one of two interest rates used as the basis to price less credit-worthy borrowers’ loans by adding an interest adjustment to the Prime Rate to compensate the lender for the added risk. The other rate used as a basis is LIBOR. The Prime rate is largely determined by the Federal Funds Rate, the rate at which banks lend to one another. By pricing loans as compared to the Prime Rate, the interest cost of the loan will change as the Prime Rate changes.