Prime Interest Rate History

Historically, the Prime interest Rate has been defined as the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). This notion no longer strictly applies anymore, because banks are able to charge lower interest rates nowadays.

The prime rate is one of the most widely used market indicators. It’s quite common to use the prime interest rate as a benchmark.

Banks use the prime rate to set interest rates on short term loan products. The terms are typically expressed as prime plus a certain percentage, depending on the borrower’s credit rating and other factors.  Adjustments are generally made by banks at the same time.

When you buy a house you can expect to pay your bond based on the prime interest rates. So this essentially means that if this rate goes up, you end up paying more every month. A lower prime interest rate is good news for you if you are paying for your home through a bond. In this way the prime interest rate is used as a benchmark to guide borrowers when they compile their household budgets.

In addition to commercial loans and credit card rates, many consumer loans are based upon Prime, including: home equity loans, car loans and personal loans.

The prime interest rate can go up and down over time, usually in correlation with the repo rate. There are situations where banks charge at a rate that is lower than the prime rate.

Various loans are offered at different interest rates, but quite often, borrowers are charged rates that are in line with the prime interest rate.