When I compared them & their histories, it seemed prime fluctuates more (meaning it goes a lot higher/lower- not necessarily fluctuates more frequently). Also, most all credit cards are tied to prime, and everyone knows credit cards are a rip off interest-wise. So, based on that limited research and understanding, I thought it would be smarter to tie my student loans to LIBOR, and that’s what I did.
Also, a lot of mortgages are tied to LIBOR, and mortgage lenders are generally competitive with interest rates. People with mortgages tend to have better credit than those without, and thus have the ability to shop around for the best deal. People with credit card debt are a little less financially savy and take whatever is offered (i.e. prime).
If you look at the historical fluctuations between LIBOR and Prime, you’ll see that they fluctuate in tandem. So, it’s not that big of a difference (and this is what most of my banker friends said, too). If one lender gives you a better rate with Prime, I would take that (that is what I did). The difference between the 2 aren’t huge.
I know I said I wouldn’t, but I just have to come back to this. I’d be remiss if I didn’t.
They don’t move in tandem, other than that when prime goes up/down, all other rates follow. That’s just how the economy works, but these two indices are independent. Prime changes when the Fed meets and the Chairman announces a change. Meetings happen 8 times a year, but there could be no change announced following a meeting (or several meetings). LIBOR changes monthly for lending purposes. The frequency of YOUR loan rate changing depends on the terms of your loan. When I look at the history of the two indices, LIBOR tends to be close to prime or around 2-3% lower than prime at most points in time.
Sorry, but I disagree with those banker friends. Granted, this is all based on history and no one knows what will happen to the rates in the future, but to me LIBOR is a much better bet to tie a loan to.
Well, technically, Prime can fluctuate regardless of what the Fed does. It usually will follow the Fed, but it doesn’t have to. Prime is directly controlled by the banks. I like Libor only because it does tend to have a longer focus. But, if the marginal rates are materially different (more than, say, half a point) I’d go with the lower of the two, regardless.
stag, my main point was that if you get a much better rate from one lender than another (in my case, it was just over 1% less to take the loan with prime), it really doesn’t matter. what i mean by “moving in tandem” is this: http://www.briefing.com/morningstar/mtgdata/prm_lbr.htm
if you look, over the past 20 years, neither rate has done really crazy things while the other one stayed pretty normal. they move together - and i don’t mean to say that they have an effect on each other, but that it doesn’t seem like one is the clear choice, historically speaking. but that is my two cents.
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When I compared them & their histories, it seemed prime fluctuates more (meaning it goes a lot higher/lower- not necessarily fluctuates more frequently). Also, most all credit cards are tied to prime, and everyone knows credit cards are a rip off interest-wise. So, based on that limited research and understanding, I thought it would be smarter to tie my student loans to LIBOR, and that’s what I did.
Also, a lot of mortgages are tied to LIBOR, and mortgage lenders are generally competitive with interest rates. People with mortgages tend to have better credit than those without, and thus have the ability to shop around for the best deal. People with credit card debt are a little less financially savy and take whatever is offered (i.e. prime).
Check this out: http://www.liborindex.com/
I won’t comment on this anymore…
If you look at the historical fluctuations between LIBOR and Prime, you’ll see that they fluctuate in tandem. So, it’s not that big of a difference (and this is what most of my banker friends said, too). If one lender gives you a better rate with Prime, I would take that (that is what I did). The difference between the 2 aren’t huge.
I know I said I wouldn’t, but I just have to come back to this. I’d be remiss if I didn’t.
They don’t move in tandem, other than that when prime goes up/down, all other rates follow. That’s just how the economy works, but these two indices are independent. Prime changes when the Fed meets and the Chairman announces a change. Meetings happen 8 times a year, but there could be no change announced following a meeting (or several meetings). LIBOR changes monthly for lending purposes. The frequency of YOUR loan rate changing depends on the terms of your loan. When I look at the history of the two indices, LIBOR tends to be close to prime or around 2-3% lower than prime at most points in time.
Sorry, but I disagree with those banker friends. Granted, this is all based on history and no one knows what will happen to the rates in the future, but to me LIBOR is a much better bet to tie a loan to.
Well, technically, Prime can fluctuate regardless of what the Fed does. It usually will follow the Fed, but it doesn’t have to. Prime is directly controlled by the banks. I like Libor only because it does tend to have a longer focus. But, if the marginal rates are materially different (more than, say, half a point) I’d go with the lower of the two, regardless.
stag, my main point was that if you get a much better rate from one lender than another (in my case, it was just over 1% less to take the loan with prime), it really doesn’t matter. what i mean by “moving in tandem” is this:
http://www.briefing.com/morningstar/mtgdata/prm_lbr.htm
if you look, over the past 20 years, neither rate has done really crazy things while the other one stayed pretty normal. they move together - and i don’t mean to say that they have an effect on each other, but that it doesn’t seem like one is the clear choice, historically speaking. but that is my two cents.