The bank lending rate (also called the base lending rate or prime rate) is the interest rate that a bank charges when it lends money to customers. It is the price of borrowing money, and it directly affects your loan EMIs, credit card rates, and business borrowing costs.
Banks set their lending rate based on several factors: the central bank's policy rate (like the Fed Funds Rate or RBI Repo Rate), their own cost of funds, operating expenses, and the borrower's credit risk. A borrower with excellent credit might get the base rate, while a riskier borrower pays base rate plus 2-3%.
When central banks raise rates, bank lending rates rise too — making loans more expensive and slowing economic activity. When rates drop, borrowing becomes cheaper, stimulating spending and investment. In the US, the prime rate is currently around 8.5% (as of early 2025), while in India, SBI's lending rate hovers around 8-9%.