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Prime rate

The prime rate is the interest rate banks charge on loans to their most credit-worthy borrowers, usually large, stable businesses. The rate is almost always the same among major banks.

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Expanded Definition

A prime rate by any other name might be a prime lending rate, the U.S. prime rate, or The Wall Street Journal prime rate. Check the Journal or other financial publications to find the day's rate, a benchmark that serves as the starting point for interest rates charged on things such as home-equity loans and credit cards. Here's some wonkery on why the venerable Journal gets to claim the rate: The WSJ keeps track of the interest rates that the 30 largest U.S. banks are charging their most credit-worthy customers. The lenders generally have the same prime rate -- based on the federal funds rate -- and the Journal changes the rate when at least three-quarters of the banks polled change their rates.

Borrowers want to pay attention to the 'prime plus' phrases. A sirloin steak deemed prime + 10 might perk up your taste buds more than one rated just prime + 3, but that reasoning is turned on its head when shopping for loans. A loan offered at prime + 2, for instance, would have an interest rate of the prime rate plus 2 percentage points. Loans can be made for interest rates lower than the prime rate.

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