Prime Rate Law and Legal Definition

Prime rate means the interest rate that banks charge to their best customers. Prime rate sets a level of minimum interest rates charged while giving out the loans. One of the advantages of the prime rate system is that there will not be much variance on the loans sanctioned to the preferred customer, the corporate bodies, and retail customers. Another advantage of prime rate system is the clarity in calculating the prime rates. However, the prime rate system does not apply to the loans such as agricultural loans, loans given to own employees, loans against deposit, and export credit. The prime rate will help borrowers to equate interest rates offered by various banks and to understand the process of how banks arrive at interest rates for more transparent loans.