3-month libor vs. prime rate

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What's the difference between the 3-month libor and the primate rate? Most lenders are using the prime rate, but the one I'm paticularly interested in borrowing from uses the 3-month libor. Any insights on this issue?

 

[organic]

This is my question too, what is that LIBOR and PRIME rate? which one is lower?
and which one is more stable?
Is there a upper limit as to how high they will get?
what mechanisms cause them to go up or down?


Any input is well appreciated

 

[mpp]

The LIBOR (London Interbank Offered Rate Index) is an average of rates that big international banks charge each other for loans. It fluctuates daily. The 3-month LIBOR is currently 1.120%.

The Prime rate is what banks charge to their most credit worthy customers and is definitely more stable (currently 4.00%).

A nice website to check these rates is www.bankrate.com

 

[organic]

thanks for your explanation,
but there is something I don't understand
for example,
access group offers a loan with interest rate of
30 month LIBOR+2.7% or 3.8 % based on credit history, that makes the rate 3.82% or 4.92%

Sallie Mae/ Bank One offers a rate of prime+1.5 % with coborrower, so that makes the rate right now 5.5%

so with the rest of conditions very similar, why would people even want to take a loan from Sallie Mae? OH, well, the difference is not huge, but still.... I am wondering if either LIBOR or PRIME is preferred for any other factor?😕

I need to work on my financial IQ

thanks

 

[mpp]

The prime rate is a bit more fixed, that is it does not change as often as the LIBOR which can change. Are both these loans fixed-rate or variable?

Also, be sure the terms are the same, that is be sure they are telling you what the APR will be. There may be different methods of compounding that will give two loans with seemingly different rates that have the same APR (annual percentage rate).

 

[organic]

the 2 rates ( APR) are both variable I believe ( since Prime rate and LIBOR are variable....😕 )

thanks for your info, I think get the gist of it, but ..how can 2 loans offer different rates with the same APR? I thought the rate I was talking about was APR.... 😕 😕 😕

I will contact the loans I am interested in to learn more

By the way, mpp, your icon with Tintin and Milou, do you know which album it is from?

thanks

 

[mpp]

Originally posted by organic


By the way, mpp, your icon with Tintin and Milou, do you know which album it is from?

Not sure...it's just one I picked up from Google...

 

[Mikhail]

Hi,

Libor is the same as the primary rate. Libor is used in England, primary rate is used in the U.S. Historically, both rates have been the same or almost the same.

 

[organic]

Originally posted by Mikhail
Hi,

Libor is the same as the primary rate. Libor is used in England, primary rate is used in the U.S. Historically, both rates have been the same or almost the same.

What do you mean" the same" ?
they have different rates, their numbers are different, why would they be the same????


Libor is only used in England? or in the UK historically?

thanks😕

 

[Mikhail]

Libor is only used in the England. It is a monetary tool that the Bank of England uses to control almost all interest rates in England.
The primary rate is used by the Federal Reserve bank in the U.S. to control interest rates. Basicaly, the trends of these rates are the same, as one goes up in England, the other goes up in the U.S.
If the economy is no doing well in the U.S., it doesn't do well either in England and so both Libor and primary rate are low in both countries. As economies are getting better all over the world, the rates will be rising soon.