What is the prime interest rate?

The prime interest rate is the basic rate of interest that commercial banks – Standard Bank, ABSA, Nedbank, FNB, Capitec, African Bank, Investec, and so on – will charge their clients when loaning them money.

Also known as the prime lending rate, it is the basic or default interest rate that you could be charged when borrowing for big purchases such as a home or a car.

The prime interest rate is linked to the repo rate. This is the rate at which the commercial banks borrow money from the Reserve Bank. When the repo rate goes up or down, the prime rate changes by the same margin.

When you apply for a home loan (bond) or vehicle finance, the banks weigh up the different risk factors of lending you money. This determines their decision to offer you a rate above, below, or equal to the current prime interest rate.

The table below shows the rate in South Africa for the last two decades and counting.

South Africa's prime rate over time