Prime lending rates (PLR) refer to interest rates charged by commercial banks for the benefit of their creditworthy customers. Prime lending rates can also be described as rates that are paid by premier companies to banks in order to obtain funds.
The different types of prime lending rates include short term prime lending rates, long term prime lending rates, home equity-fixed rates, home equity-variable rates etc. Each bank, building society or specialist loans company sets their own prime lending rates. Prime lending rates also change according to different lending products. Almost all banks change the prime lending rates every 3 months or 6 months.
Some issuers of credit cards use prime rates to calculate interest. Prime lending rate is an economic indicator used by credit companies to determine the interest rate charged on their variable rate credit cards. The changes in fixed rate mortgage do not affect the prime lending rate. Interest rates are indirectly correlated to the prime lending rates (PLR).
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First time borrowers are provided loans with discounted current prime lending rates and therefore most first time loans are offered below the PLR.
Increase in the value of bonds will also increase the rate of lending. Sometimes, banks increase the rate of prime lending when the cost of obtaining funds increases. Sometimes banks offer rates below the present prime lending rate in order to attract new customers.
Prime lending rates are affected by federal fund rates. These rates vary with the availability of funds in the banks and the demand for credit in the market.
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