Prime Rate – What is the Prime Rate in finance?

What is the Prime Rate?

Definition of Prime Rate: This is also referred as a prime leading rate. It is an expression used in several countries in the form of reference rate of interest utilized by the banks. Originally, the term means the interest rate by which the banks would provide to its most preferential creditworthy consumers. This practice of the expression is not applied nowadays. Banks may generally state that the changing rate of interest equates to the margin over and under the main rate. In US, the main rate is nearly 300 basis points over the Federal Rate, rate of interest that the banks charge for sudden loans create to complete the requirements of the reserve funding set up by the Federal Bank. The Fed Rate plus and a small border is often utilized for lending the creditworthy exchangers. LIBOR is a benchmark rate utilized for the same purpose.