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Prime Rate

A prime rate is an interest rate that commercial banks charge their best or most credit-worthy clients, who are usually prominent and stable business clients who aren’t very likely to default on a loan. The likelihood or risk of default is mainly what determines the interest rate a bank will charge you. The prime rate is not the same as the loan rate that’s charged on personal property loans; however, the prime lending rate is often used in calculating mortgages. Mortgage rates on consumer loans are generally higher than prime interest rates because individual borrowers are more likely to default on a loan than stable business borrowers, such as large corporations.

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