The prime interest rate is the interest rate banks charge their most favored customers, or those with a good credit history given their low default risk.
Every loan agreement comes standard with a form of interest that must be paid. Interest rates can be negotiable but usually appear in one of two forms: Variable or Fixed. A Variable Interest Rate loan has an interest rate on the outstanding balance that rises or falls based on the current status of the market interest rate. On the other hand, a Fixed Interest Rate loan has an interest rate that remains constant for the duration of the agreed loan term.