Bank Loans
Loan Interest Rates
- Prime Rate of Interest is the rate upon which all other rates are based
- The bank's best business borrowers may obtain loans at, or sometimes below, prime
- Most loans are at prime plus a risk-based increment
- Fixed-Rate Loan
- Floating-Rate Loan
- Method of Computing Interest
- Interest paid at maturity of the loan
- For a loan upon which interest is paid at maturity, the effective interest rate is calculated as:
Amount Borrowed
- Paid in advance, creating a discount loan
- For a discount loan the effective interest rate is calculated as:
$ Interest Paid
Amount Borrowed - Interest
- 1994, HarperCollins Publishers