Definition

Noun: * The benchmark interest rate that commercial banks charge their most creditworthy corporate clients for short-term loans. It serves as a base rate for many other forms of consumer and business credit.

Usage

The term "prime interest rate" is used primarily in finance and economics to discuss lending costs, monetary policy, and economic conditions. It is often shortened to "the prime rate" in common usage.

Examples

• Noun:
  • The central bank's decision caused the prime interest rate to rise by half a percentage point.
  • Small business loans are often priced at the prime interest rate plus an additional percentage.
  • A lower prime interest rate can stimulate borrowing and investment.

Advanced Usage

• "to set the prime interest rate": Describes the action of a bank establishing this rate.
  • Major banks typically set the prime interest rate based on the federal funds rate.
• "prime interest rate environment": Refers to the general state of high or low prime rates.
  • The current low prime interest rate environment has been favorable for home equity loans.

Variants and Related Words

• Prime Rate (n): The common abbreviated form of "prime interest rate."
  • The prime rate is a key indicator of the cost of business borrowing.
• Federal Funds Rate (n): The interest rate at which depository institutions lend reserve balances to other banks overnight. This rate heavily influences the prime rate.
• Base Rate (n): A similar concept used in other financial systems.

Synonyms

• Benchmark Lending Rate: A rate used as a reference point for other loans.
• Corporate Prime Rate: Emphasizes its primary application to business clients.

Related Phrases

• "Prime plus": A common method for quoting variable interest rates, where a loan's rate is the prime interest rate plus a specified number of percentage points.
  • The loan's annual percentage rate is prime plus 2.5%.
• "Tied to the prime rate": Describes an interest rate that changes when the prime rate changes.
  • The interest on this line of credit is tied to the prime rate.

Noun

1. the interest rate on short-term loans that banks charge their commercial customers with high credit ratings