prime rate

The interest rate that banks charge to corporations that are considered excellent risks.

Note: The prime rate is usually the lowest prevailing interest rate; if it rises, rates available to consumers will soon rise.

Prime Rate

The interest rate that commercial banks charge their most credit-worthy customers. Generally a bank's best customers consist of large corporations.

Investopedia Commentary

Default risk is the main determiner of the interest rate a bank will charge a borrower. Because a bank's best customers have little chance of defaulting, the bank can charge them a rate that is lower than the rate that would be charged to a customer who has a higher likelihood of defaulting on a loan.

Related Links

What Is A Corporate Credit Rating?
Trying To Predict Interest Rates
The Importance of Your Credit Rating
Consumer Credit Report: What's on It

See also: Bank Rate, Central Bank, Federal Reserve Bank, Interest Rate, Points, Subprime Loan

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.