prime rate

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Prime rate

The interest rate at which banks lend to their best (prime) customers. More often than not, a bank's most creditworthy customers borrow at rates below the prime rate.

Prime Rate

The best available interest rate under most circumstances. In general, only the most creditworthy customers receive the prime rate, but this is not always true. In any case, a prime rate serves as a benchmark against which other interest rates are compared.

prime rate

A short-term interest rate quoted by a commercial bank as an indication of the rate being charged on loans to its best commercial customers. Even though banks frequently charge more and sometimes less than the quoted prime rate, it is a benchmark against which other rates are measured and often keyed. For various reasons, a rising prime rate is generally considered detrimental to security prices. Also called prime.

Prime rate.

The prime rate is a benchmark for interest rates on business and consumer loans.

For example, a bank may charge you the prime rate plus two percentage points on a car loan or home equity loan.

The prime rate is determined by the federal funds rate, which is the rate banks charge each other to borrow money overnight. If banks must pay more to borrow, they raise the prime rate. If their cost drops, they drop the prime rate. The difference between the two rates is three percentage points, with the prime rate always the higher number.

The federal funds rate itself is determined by supply and demand, prompted by the actions of the Open Market Committee of the Federal Reserve to increase or decrease the money supply.

prime rate

the INTEREST RATE charged by COMMERCIAL BANKS for short-term LOANS to their most preferential customers. The prime rate is somewhat lower than other commercial borrowing rates but applies only to what may be called ‘blue-chip’ companies, generally large companies with the highest credit ratings. See BANK LOAN, BASE RATE.

prime rate

Traditionally defined as the rate of interest charged by a financial institution to its best customers. In reality, many commercial loans are quoted in terms of “prime minus one quarter,”for example, which indicates there are better rates than prime. In addition, many lenders offer rates based on the London Interbank Offered Rate (LIBOR), resulting in interest rates less than prime. Today,prime rate is often just a published rate by a financial institution,called its prime rate whether it is the lowest offered rate or not.

References in periodicals archive ?
The results further show significant and positive relations between two macroeconomic variables (prime interest rate and yield curve slope) and the likelihood of issuing public debt versus private debt, suggesting that firms are more likely to issue public debt relative to private debt in economic environments with high interest rates and steep yield curves.
Following prime interest rates, Mortgage X historical data show that one-year adjustable rate mortgages (ARM): Initial Interest Rate declined from the 7.25 % in 2001 to below 3.5% in 2004.
The prime interest rate was relatively stable over the sample period, ranging from six to thirteen percent.
The central bank has pegged the prime interest rate at about 11 percent in an effort to keep inflation under control and to prevent consumers from overdoing credit spending.
Consumer price inflation should drop to near 5 percent this year while recent reductions in the prime interest rate will open the door to attractive financing options on high-end goods.
The United States was suffering from double-digit inflation, high unemployment, and a 15.5 percent prime interest rate. In response, President Carter went on national TV to blame the citizenry for being in a malaise.
With the prime interest rate at or below 5.5 percent, lending institutions will have the leeway to offer attractive terms of financing for high-end purchases.
Most analysts expect the interest rate to be cut by a percentage point in June, September and November, with the prime interest rate ending this year at 14% with a further 1% next March just a month short of the general election next year.
David Seiders, chief economist for the National Association of Home Builders, said that after the present uncertainties, "we're looking for a good second half this year and a good 2004." He predicted the president will get half his tax package, about $350 billion; the prime interest rate will remain low through October; and the housing decline isn't that troubling because single-family homes, "the heart of the market," and remodeling are good.
The second capital market variable is the prime interest rate (Prime) as reported by the Federal Reserve Board.
For the 2000 growing season, Pioneer launched a sales program called TruChoice, which offers deferred payments to farmers on seed purchases that also could be expanded to include select crop protection products at 3 points below the prime interest rate.
The prime interest rate is expected to rise to 5.25 percent during the first quarter of 2001.