What is Prime Lending Rates (PLR)

What does Prime rate/Prime lending rate means – The interest rate that commercial banks charge their most creditworthy customers. Generally, a bank’s best customers consist of large corporations. The prime interest rate, prime lending rate is largely determined by the federal funds rate, which is the overnight rate that banks lend to one another. 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 & personal loans. (Source: Investopedia)

Though some banks charge their best customer more and some less than the official prime rate, the rate tends to become standard across the banking industry when a major bank moves its prime up or down. The rate is a key interest rate since loans to less creditworthy customers are often tied to the prime rate. For example, a Blue Chip Company may borrow at a prime rate of 5 % but a less well-established small business may borrow from the same bank at prime plus 2% i.e. 7%.

Many consumer loans, such as home equity, automobile, mortgage & credit card loans are tied to the prime rate. Although the major bank prime rate is the definitive “Best Rate”. Reference point, Many Banks, particularly, those in outline regions have a two-tier system whereby smaller companies of top credit standing may borrow at an even lower rate

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