What’s the deal with the Prime Lending Rate?

What is the prime lending rate?

The prime lending rate is the base rate set by the reserve bank which commercial banks use as a benchmark to determine the interest rates offered to consumers on products like homeloans, vehicle finance and fixed-term loans.

Why does it matter?

Most credit is linked to prime, and as prime increases your installments are likely to increase proportionately – make sure your budget allows for the additional payment.

Should you be on the other end where you are owed money by the bank (savings) or you have debtors that owe you money where the Prescribed Rate of Interest Act applies, then you will also be earning a higher interest rate.

Why does it change?

There are many reasons why the interest rate is changed from time to time, some of which are external to the country.

In this case however it can be said that due to the pandemic we have experienced the policy has been to keep the interest rates low to keep the economy active (there is more consumer spending when rates are lower).

As the economy speeds up interest rates are raised again in order to keep inflation in check and ensure that prices of consumer goods don’t skyrocket as a result of the easier credit and increased demand.