Prime Lending Rate (PLR)
Prime Lending Rate (PLR) of a bank is the rate at which it lends to its prime customers, whom they consider safe to lend. However, in practice Banks do lend at rates lower than the Prime Lending Rate.
Factors influencing Interest Rates
We all are aware that different banks offer credit at different rates. And also banks offer different rates for different products. The rates are determined by the concerned bank by taking a lot of factors under consideration. Some of the factors are :
- Purpose of the loan
- Legal entity of the borrower(individual, partnership, society, etc)
- Amount of the loan
- Tenure of repayment
- How secured is the Loan
- Credit score/rating of the borrower
- Profile of the borrower (age, education, experience, income)
- Availability of collateral security
- Nature of limit (Term Loan, Overdraft, etc)
However ,in 2010,based on the report submitted by Deepak Mohanty, Reserve Bank of India has instructed banks to introduce Base Rate in place of Prime Lending Rate. Base rate is the minimum lending rate that the bank offers. It is expected that with the introduction of base rate, the shortcomings of the prime lending rate with reference to the present market situation will be taken care of.
