financial newspaper

What is prime rate on a loan?

Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.

How the Wall Street Journal prime rate can affect the cost of your loan.

You might have come across the Wall Street Journal (WSJ) prime rate when trying to figure out how much a loan costs. Instead of giving a straightforward range of rates, some lenders offer variable interest based on the prime rate plus a range of smaller rates, often between 2% and 5%. The prime rate rises and falls based on the lending market, so there’s the potential that you could pay much less — or much more — in interest compared to a loan with a fixed interest rate.

The WSJ prime rate for November 2020

  • This week: 3.25%
  • One month ago: 4.75%
  • One year ago: 5.5%

What is the prime rate?

The prime rate is the interest rate that most big US banks give to their most creditworthy borrowers, fluctuates based on the state of the lending market and overall economy. If you have strong credit and overall personal financials, you could qualify for a loan based on the prime rate alone. Otherwise, lenders typically treat the prime rate as what’s known as a benchmark or starting rate on a variable-rate loan.

How does the prime rate work?

Lenders give borrowers a smaller fixed percentage called a margin rate, and then add that number to the ever-changing prime rate. So, if you got a variable-rate loan at 2% margin rate + prime — and the prime rate was 5% — you’d actually pay a 7% interest rate. If the prime rate goes up to 6%, then you’d pay an 8% interest rate.

The prime rate is also called the prime lending rate, WSJ prime rate, the index rate and sometimes even just “prime.” You can learn more about how benchmark and margin rates work by reading our article on fixed-rate and variable-rate student loans.

Read about:   Excessive loan-to-income mortgages: new domestic loans might give debtors an additional £200k

How is the prime rate calculated?

The Wall Street Journal calculates the prime rate based on the interest that the top 30 largest banks in the country charge their most creditworthy clients. Then it publishes a rate based on the results. The prime rate changes when three-quarters of the banks — or 23 of them — change the most competitive rates they offer.

You can typically get an idea of the prime rate by looking at the federal funds rate, or the interest rate banks charge each other on overnight loans if they don’t have enough cash in their reserve when the day is over. The Federal Reserve sets the federal funds rate to protect against inflation and control economic growth.

The prime rate is typically around 3% higher than the federal funds rate. Currently, the federal funds rate is 0-0.25% and the prime rate is 3.25%.

What loans use the prime rate?

Any variable-rate personal or business loan might use the prime rate as a benchmark. It’s also common with mortgages and other types of home loans. However, not all variable rates are based on the prime rate.

Many lenders that use prime write out the rate as: prime plus the margin rate. Otherwise, a lender might give you a range of current rates and mention what type of benchmark it uses in the fine print.

Private student loans

You might run into the WSJ prime rate if you’re looking for a private student loan or want to refinance your student debt. That’s because most student loan providers offer a choice between fixed and variable rates. However, lenders more commonly use the LIBOR rate on variable-rate student loans, not the prime rate.

Read about:   Is it time to refinance?

Business loans

Fixed-term business loans and lines of credit often come with variable rates — many of which are based on the prime rate. Unlike with student loans, you typically don’t have a choice between fixed or variable rates. The lender usually offers one or the other. Still, many types of alternative business financing — like invoice factoring — rely on other fee structures that don’t involve interest at all.

Personal loans

Prime rate isn’t as common on general-use personal loans — many lenders only charge fixed rates. You’re more likely to find a variable-rate personal loan based on the WSJ prime rate if you apply for a loan with a big bank — and even then it’s more common with unsecured lines of credit.

Car loans

Variable rates are even less common with car loans than personal loans, meaning that you probably won’t have to worry about the prime rate when getting your next set of wheels or refinancing. Like with personal loans, variable-rate car loans that rely on the prime rate are more common with big banks than smaller online lenders.

Home loans

Variable rates are perhaps the most common with home loans. Adjustable-rate mortgages come with a period of fixed interest rates and another with variable rates that might be based on the WSJ prime rate. But it’s more common with home equity loans and lines of credit.

Compare a selection of loans you can apply for today

Sort by:

Name Product

$5,000 – $300,000

Fee Based

At least 1 year in business, an annual revenue of $100,000+, and a minimum credit score of 400

Alternative financing up to $300K with highly competitive rates.

Lendio business loans

$500 – $5,000,000

Starting at 6%

Operate business in US or Canada, have a business bank account, 560+ personal credit score

Submit one simple application to potentially get offers from a network of over 300 legit business lenders.

ROK Financial business loans

$10,000 – $5,000,000

Starting at 6%

Eligibility criteria 3+ months in business, $15,000+ in monthly gross sales or $180,000+ in annual sales

A connection service for all types of businesses — even startups.

OnDeck small business loans

$5,000 – $250,000

As low as 11.89%

600+ personal credit score, 1 year in business, $100,000+ annual revenue

A leading online business lender offering flexible financing at competitive fixed rates.

Rapid Finance small business loans

$5,000 – $1,000,000

Fee based

Steady flow of credit card sales, bad credit OK

Fundbox business loans

$1,000 – $100,000


You must have an established business.

Get flat rate, short-term financing based on the financial health of your business, not your credit score.

Kickpay e-commerce business loans

$20,000 – $1,000,000

Not applicable

At least $250,000 in the past 12 months of revenue, e-commerce business, use a 3rd party fulfillment center for storing and shipping inventory, at least one US location.

Get a loan for your e-commerce business based on your sales history.

LendingClub business loans

$5,000 – $500,000

12.15% to 29.97%

12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better

With loan terms that vary from 12 to 60 months, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.

Monevo business loans

$500 – $100,000

3.99% to 35.99%

Credit score of 500+, legal US resident and ages 18+.

Use this connection service to get paired with a loan you can use for business.

Read about:   Our low 2 constant Fee simply bought decrease 12 months! Why select our Fastened Velocity Residence Mortgage?

Sort by:

Name Product
Credible personal loans

4.99% to 35.99%

Fair to excellent credit


Get personalized rates in minutes and then choose an offer from a selection of top online lenders.

Monevo personal loans

3.49% to 35.99%



Quickly compare multiple online lenders with competitive rates depending on your credit.

Fiona personal loans

4.99% to 35.99%



Get loan offers from multiple lenders at once without affecting your credit score.

LendingTree personal loans

Starting from 2.49%

Good to excellent credit


Receive up to five loan offers in just minutes through LendingTree’s simple online form.

SoFi personal loans

5.99% to 18.28%



A highly-rated lender with competitive rates, high loan amounts and no fees.

Load More

Sort by:

Name Product

No minimum credit score

3.9% to 27.9%


18+ years old, annual income of $4,000+, no active bankruptcies

Get pre-qualified for used car financing and receive competitive, personalized rates. Car Loans


Varies by network lender

Varies by lender

Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.

Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.

CarsDirect auto loans

Varies by network lender

Varies by network lender

Must provide proof of income, proof of residence, and proof of insurance.

Save time and effort with this lending service specializing in beginner-friendly or subprime car loan.

Auto Credit Express Car Loans




Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.

Get connected with an auto lender near you, even if you have bad credit.

Monevo Auto Loans


3.99% to 35.99%

3 months to 12 years

Credit score of 500+, legal US resident and ages 18+.

Quickly compare multiple online lenders with competitive rates depending on your credit.

LightStream Auto Loans

Good to excellent credit


2 to 7 years

Good or excellent credit, enough income or assets to afford a new loan, US citizen or permanent resident, 18+ years old

Quick car loans from $5,000 to $100,000 with competitive rates for borrowers with strong credit.


Good to excellent credit

Starting at 3.09%

Varies by lender

18+ years old, good to excellent credit, US citizen

Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.

Bottom line

Understanding the prime rate can give you a better idea of how much a variable-rate loan will cost. Since it changes based on the state of the lending market, you could end up either saving or paying a lot more than you would with a fixed-rate loan.

To learn more about how loans work, read our guide to personal loans.

Frequently asked questions

  • How often does the prime rate change?

  • Are SBA loan rates based on the WSJ prime rate?

  • Are subprime rates higher or lower than the prime rate?

  • No, though the fed rate can influence the prime rate. The fed rate is the interest rate that the Federal Reserve uses when it lends money to banks and other lenders. The fed rate in turn affects the interest rates that lenders offer their prime customers.

    The WSJ prime rate is based on the interest rates that these banks are offering. So, typically when the fed rate increases or decreases, so does the prime rate.