Legal Definitions - prime lending rate

Definition: The prime lending rate is the interest rate that commercial banks charge their most creditworthy customers for loans. It is also known as the prime rate and is typically used as a benchmark for other interest rates.

Example: If the prime lending rate is 4%, a bank may offer a loan to a customer with a 2% interest rate above the prime rate, making the customer's interest rate 6%.

Explanation: The prime lending rate is an important factor in determining the interest rates that banks charge for loans. Banks use the prime rate as a baseline and adjust their rates based on the creditworthiness of the borrower and other factors. For example, a borrower with a high credit score may be offered a loan with a lower interest rate than a borrower with a lower credit score.