The Prime Rate and Insurance Premium Financing

What is the Prime Rate? How does it relate to insurance premium financing? What else influences premium finance rates? These common questions and more addressed here!

The Prime Rate is the most common and widely recognized index in the financial markets. It is used as a starting point for all types of loan interest rates including mortgages, auto loans and business loans. It is defined by Investopedia as: “The prime rate (prime) is the interest rate that commercial banks charge their most creditworthy customers, generally large corporations. The prime interest rate, or prime lending rate, is largely determined by the federal funds rate, which is the overnight rate that banks use to lend to one another.”  As the Prime Rate changes, generally so too will borrowing rates on most loans.

While the Prime Rate is important, it is not the only factor that matters in insurance premium financing rates. Since premium financing is generally a short-term loan (less than a year), other short-term indexes are also important, such as the federal funds rate, short-term treasury bills and LIBOR. In addition to interest rate indexes, other factors may affect the premium finance interest rate such as how much money is being borrowed, the payment terms of the premium finance loan and the creditworthiness of the borrower, among other factors.

While determining premium finance rates can be complex, you can rest assured that Premium Finance Brokerage will work for YOU to ensure your customers receive the best possible rates for their premium finance loans. Contact us at 866-381-6501 or for assistance with any of your premium finance needs.