What term refers to the interest rate charged by banks to their preferred business customers?

The prime rate refers to the interest rate that banks charge their most creditworthy or preferred business customers. This rate serves as a benchmark for various loan products and is often influenced by the central bank's monetary policy. The prime rate is typically lower than other rates available to less preferred customers, reflecting the lower risk involved in lending to those with higher creditworthiness.

When banks determine this rate, they assess factors including their financing costs, economic conditions, and competition within the market. As a result, fluctuations in the prime rate are closely monitored by businesses and consumers alike, as they can impact borrowing costs for loans tied to this rate, such as variable-rate mortgage loans and credit lines. The significance of the prime rate lies in its role as an essential indicator of the overall credit environment and economic health.