Definition
Lending Rate
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The lending rate generally means the interest rate in which lenders place on their loan and credit products.
It is the reverse of what the bank pays for interest on deposits and savings.
The lending rate dictates the source and amount of income a lender makes. While the deposits rate is a cost of funds.
Sometimes known as the lending flat, the lending rate should be higher than deposit rates by logic as the difference between two would be the spread in which the lender generate a gross revenue.
Funds collected from consumer savings account are used to issue as loans to borrower.
In effect, depositors are suppliers to a bank while borrowers are customers.
It must be noted that depositors’ money is not the only source of funds a bank has access to.
SIBOR for example is the rate in which lenders lend from one another. If a bank is not able to attract depositors due to the expectation of higher interest bearing accounts, then the lender can simply access funds from the SIBOR market.
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