You are planning to buy a home. You have done your research, decided the lender you wish to avail yourself of a home loan from and saved enough to easily be able to clear the down payment. You now approach your preferred lender and are surprised to learn that they plan to charge you a home loan interest rate much higher than you imagined. You wonder why is this happening: you have a good credit score and a stable job and income. So, why is your lender not willing to sanction you a home loan at a lower home loan interest rate or a rate that seems affordable to you? The answer lies in the concept of Prime Lending Rate. 

What is the Prime Lending Rate? 

The Prime lending rate is the lowest interest rate at which lenders sanction loans to their most reliable and creditworthy borrowers. The Prime Lending Rate is always higher than the base rate, which is the minimum rate of interest at which lenders can sanction a loan to a borrower. All lenders add a spread to the base rate and that’s how the PLR is decided. The spread that a lender adds is decided based on several different factors, such as the applicant’s credit score, income and employment stability. 

How do Prime Lending Rates affect Home Loan Interest Rates? 

Lenders decide the home loan interest rates to be offered to a borrower based on the Prime Lending Rate. As mentioned before, the Prime Lending Rate is the rate of interest at which lenders sanction loans to their most creditworthy borrowers. If you have an excellent credit profile and a stable income and job, your lender will sanction you a loan at home loan interest rates equivalent to their Prime Lending Rate. If you do not have an excellent repayment capacity, if your credit score is average or below average and if your lender has reasons to doubt your repayment capacity and creditworthiness, they will add a higher spread to the PLR or prime lending rate to make up for the risk involved in lending money to the borrower. 

In conclusion, Prime Lending Rates have a direct impact on a borrower’s home loan interest rates. The prime lending rate can be seen as the interest rate for a bank’s internal reference. The Prime Lending Rate is decided internally by the members of a bank or the financial institution and they have a direct impact on one’s home loan interest rates.If you are planning to avail yourself of a home loan and wish to be able to score a home loan deal on the lowest home loan interest rates possible, keep a few things in mind. To start with, make sure your credit score is 750 or above. Such a credit score indicates high repayment capacity and creditworthiness and therefore, individuals with a high credit score can avail themselves low home loan interest rates in case of such individuals, lenders charge a small spread on PLR or Base Rate. Further, make it a point to plan and save as high a down payment as possible. This will help you keep your loan’s LTV ratio low, which in turn, will help reduce the risk involved for the lender and in turn, encourage them to offer you a loan on the lowest home loan interest rates possible. Further maintaining high income and job stability can help too.