Prime Rate or Prime Lending Rates (PLR)
Prime rate or Prime lending rates (PLR) refer to interest rates charged by commercial banks for their most credit-worthy customers. Generally credit-worthy customers consist of large corporations.
The rate is a key interest rate, since loans to less-creditworthy customers are often tied to a high interest rate. For example, a “Company A ” (most credit-worthy customer) may borrow at a prime rate of 5%, but a less-well-established “Company B” may borrow from the same bank at prime plus 1, or 6%.
Bank’s good standing customers have little chance of defaulting than customer who has a higher risk of defaulting, so the bank can charge them a rate that is lower than the rate that would be charged to other customers.
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