Canada Prime Rate
The Canada Prime Rate sometimes also called the Prime Lending Rate is simply the baseline interest rate in Canada. It’s unlikely that if you were to go for a loan in Canada that your rate of interest would be exactly that of the Canada Prime Rate. Rather, the prime rate is used to help determine different interest rates for different types of loans.
Historically, the Bank of Canada Prime Rate along with the Prime Rate in the United States were the rates of interest given on loans to excellent customers who had ideal credit histories. Many businesses, for instance, would benefit by getting their interest rate at that bottom line number.
While it’s still possible for credit-worthy individuals and businesses to get loans with that low rate of interest known as the Prime Rate, in today’s economy it’s unlikely for that to happen. The rate would be used as a baseline and adjustments would be made on a variety of factors to determine the interest on a particular loan.
The Canada Prime Rate is generally the same or very close within large banks, just as the United States’ Prime Rate is generally the same throughout the banking system. It’s also possible to get a short term loan with a lower interest rate than the Bank of Canada overnight interest rate, because it’s not a law but rather a consensus.
Occasionally, banks may offer rates below prime to their most outstanding credit customers in the hopes of creating new business. Getting a rate lower than prime is highly unlikely today, however, when interest rates are already so low.
Typically, the Prime Rate is simply used as the lowest interest rate possible. When an individual takes out a loan like a mortgage, the bank calculates how far over the prime rate the interest will be and may refer to the rate as Prime plus .50% or 1%, for example, indicating that difference.
Because the Bank of Canada Prime Rate is only a baseline and not a requirement, those numbers may different because of a slightly different prime rate among banks. The most likely variation, however, is the amount added to prime for particular loans which can and does typically vary between banks and types of loan.
Variable interest types of loans will actually change as the Prime Rate does, going up or down in percentage points as that baseline Prime interest Rate is adjusted.
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