Prime Rate

Definition - What does Prime Rate mean?

Prime rate refers to the best interest rate that financial institutions give to their customers. The prime rate is typically reserved for customers who are perceived as being the least likely to default. The bank is willing to give these customers the prime rate because they are viewed as low risk, and thus high interest rates are not needed to account for high risks.

Justipedia explains Prime Rate

Customers who get prime rates from financial institutions are typically large corporations. An example of a prime rate could be a four percent interest rate that a bank gives to a large commercial real estate firm. The same bank may give a ten percent interest rate to an individual realtor who is looking for a loan. Prime rates show just how important credit scores and other forms of proof of financial trustworthiness are for people seeking loans.

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