A Guide to LIBOR vs Prime Rate

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What Is LIBOR?
How LIBOR Is Calculated
Euro Japanese yen Pound sterling Swiss franc U.S. Dollar
Overnight One week One month Two months Three months Six months One year
What LIBOR Is Used For
What Is Prime Rate?
How Prime Rate Is Calculated
What Prime Rate Is Used For
Credit cards Small business loans Auto loans Mortgages Personal loans Student loans
Differences and Similarities Between LIBOR and Prime Rate
Similarities
Both rates are used as reference points for lending transactions. Both are based on surveys given to large banks asking them at what rate they would lend. Both tend to move in the same direction as the federal funds rate.
Differences
Prime rate is a reactive rate. It only moves after the federal funds rate has changed. LIBOR is an anticipatory rate. It moves in anticipation of economic conditions. LIBOR is used by 5 different currencies, with 7 different maturities. In the U.S., commercial banks may each have their own “prime rate” that they issue to their most qualified and best borrowers. LIBOR is published by the ICE.
Pros and Cons of LIBOR
Pros and Cons of Prime Rate
The Takeaway
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Frequently Asked Questions
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About the Author
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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