Prime Rate

The prime rate or prime lending rate is an internal benchmark rate used by a lender, particularly commercial banks.

In theory, different lenders can have varying prime rates as they are computed internally.

But in practice, the prime interest rate of different lenders tend to have little variance as it is heavily based on the federal funds rate.

Prime rates are usually offered to a bank’s premium customers.

They are also often used as an index rate for credit facilities. For example a mortgage might have an interest of prime rate plus a spread of 2%.

So if you have been offered a loan at prime rate, it is very likely that you have already been offered the best offer available and any negotiation will not yield any further incentives.