19th Nov 2009 by Burt Carlson
The Prime Lending rate is the benchmark or underlying rate that banks use to determine its rates on Home Equity Lines of Credit (HELOC); credit cards; personal loans; auto loans and business loans. The most commonly used Prime rate is published by the Wall Street Journal. It is also the rate banks charge their most "creditworthy customers" for business loans (althougth they may actually charge less to certain customers). The Prime rate closely follows the Fed Funds Rate and is generally the banks cost of capital. So, this week the Fed Funds Rate is 0.00 to .25% but the Prime rate is 3.25%. The difference between what it costs the bank for funds (the Fed Funds Rate) and what it loans the funds out as (your cost) is called "spread". This is the money the bank needs to cover its costs, provide fro losses and give them a profit.
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