Many people have heard of the prime rate but may not be exactly sure what it is or how it can affect their lives. Truth is the prime rate can be very influential to most consumers who use most types of credit or home mortgages.
In general terms, the prime rate is the interest that banks or other types of credit lenders charge their most preferred and credit-worthy customers. Many times lenders who offer various types of loans such as credit cards and automobile loans will use the prime rate as a base rate upon which they will add their profit. Personal loans as well as certain types of business loans may use the prime rate as the base rate. Most types of personal loans and just about all credit card companies charged interest rates that are at least a few points higher than the prime rate. A point in this case is equal to one percentage point.
Consumers should understand that as their creditworthiness decreases due to late payments and such, the interest rates that they will be offered for future loans will increase. This same principle also applies to the economy as a whole. As the national level of creditworthiness declines the interest rates that banks and...
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