What it is:
In the finance world, prime is short for prime rate, which is the interest rate commercial banks charge their most creditworthy customers, which are usually corporations.
How it works (Example):
Anyone who has borrowed
In general, the rate is the same among nearly all the surveyed banks, and they tend to change their rates at the same time. When 75% of these banks (23 banks) change their rates, TheJournal changes its average.
Why it Matters:
Prime is one of the most widely used market indicators, albeit a lagging one, and it is a major for and rates. It is often the basis for adjustable-rate loans. For example, if a bank is a home equity loan at “prime plus 5” and its prime rate is 6%, then the bank is essentially borrowers an 11% loan (6% + 5%) whose interest rate fluctuate with the prime rate. It is important to remember that not everyone qualifies for prime -- this rate is only for customers least likely to default.