Posted by JonquilJan on October 27, 2008, 11:10 pm
> (snipped)
> > Thanks Ron. Yes that is the information I also received on the printout
> > from the financial advisor. I just don't understand why my CC company
> uses
> > that instead of Prime Rate. Well maybe I do - LIBOR is usually higher -
> and
> > more volitle - Prime Rate went down - and LIBOR (supposedly) went up.
> Whatever's been happening recently is highly unusual, and I'd suggest both
> not jumping to conclusions and putting the cyncism aside unless there's a
> sound reason for it. For instance in January of this year the prime rate
> was 6.50%, while the LIBOR 12-month rate was 3.445%. In March, the
numbers
> were 5.25% and 2.5133% and again, the prime was the higher of the two.
> This isn't all that unusal - the prime tends to be 2.5% to 3.5% above the
> LIBOR. Of the two, the prime tends to be more volatile - the prime lags
> decreases in bank cost of capital but immediately reflects increases.
> Historically, the spread between the two has been increasing, so over the
> long term a loan based on the LIBOR will be less expensive than one based
on
> the prime (if the margin - the premium over the index - is the same).
> (Source: - http://www.finaid.org/loans/prime_libor.phtml )
> As to why a bank would base it's credit card rates on the LIBOR, my guess
is
> that the LIBOR reflects the market price for money, while the prime
reflects
> the Federal Reserve's Federal Funds Target Rate.
> Concerning volatility, the federal funds target rate is usually reviewed
> every six weeks, while the LIBOR is published daily. But small jiggles in
> the daily rate don't fall into the definition of volatility in my book -
the
> price of every commodity fluctuates daily, even hourly, depending on a
host
> of factors.
Well I'm totally confused now. The question came up for me when I got my
last CC statement. I keep track of the APR rates charged and notice that it
had gone up from the last statement - not much but up. And I knew Prime
Rate had dropped. I called the CC company and was then told that APR was
based on LIBOR and not Prime Rate. From there on I have just been trying to
gather information, And am about to throw up my hands about the whole
thing.
JonquilJan
Learn something new every day
As long as you are learning, you are living
When you stop learning, you start dying
Posted by tarja.taylor on October 30, 2008, 3:14 am
> > (snipped)
> > > Thanks Ron. Yes that is the information I also received on the printout
> > > from the financial advisor. I just don't understand why my CC company
> > uses
> > > that instead of Prime Rate. Well maybe I do - LIBOR is usually higher -
> > and
> > > more volitle - Prime Rate went down - and LIBOR (supposedly) went up.
> > Whatever's been happening recently is highly unusual, and I'd suggest both
> > not jumping to conclusions and putting the cyncism aside unless there's a
> > sound reason for it. For instance in January of this year the prime rate
> > was 6.50%, while the LIBOR 12-month rate was 3.445%. In March, the
> numbers
> > were 5.25% and 2.5133% and again, the prime was the higher of the two.
> > This isn't all that unusal - the prime tends to be 2.5% to 3.5% above the
> > LIBOR. Of the two, the prime tends to be more volatile - the prime lags
> > decreases in bank cost of capital but immediately reflects increases.
> > Historically, the spread between the two has been increasing, so over the
> > long term a loan based on the LIBOR will be less expensive than one based
> on
> > the prime (if the margin - the premium over the index - is the same).
> > (Source: -http://www.finaid.org/loans/prime_libor.phtml )
> > As to why a bank would base it's credit card rates on the LIBOR, my guess
> is
> > that the LIBOR reflects the market price for money, while the prime
> reflects
> > the Federal Reserve's Federal Funds Target Rate.
> > Concerning volatility, the federal funds target rate is usually reviewed
> > every six weeks, while the LIBOR is published daily. But small jiggles in
> > the daily rate don't fall into the definition of volatility in my book -
> the
> > price of every commodity fluctuates daily, even hourly, depending on a
> host
> > of factors.
> Well I'm totally confused now. The question came up for me when I got my
> last CC statement. I keep track of the APR rates charged and notice that it
> had gone up from the last statement - not much but up. And I knew Prime
> Rate had dropped. I called the CC company and was then told that APR was
> based on LIBOR and not Prime Rate. From there on I have just been trying to
> gather information, And am about to throw up my hands about the whole
> thing.
> JonquilJan
> Learn something new every day
> As long as you are learning, you are living
> When you stop learning, you start dying- Hide quoted text -
> - Show quoted text -
i am really trying to understand all of what is going on...i looked up
LIBOR today, because, for about 2 years i heard nothing about this
acronym(?)...abbreviation when i was growing up!!...all of a sudden,
LIBOR is everywhere, as if we should have known!!!....now, it is
connected to everything...God!! them there Britts...the Empire is not
dead after all!! - that there is very scary...are we going to have to
dump more Tea in Boston Harbour????....kind of quietly
humourous????...
Posted by Lou on October 30, 2008, 7:39 pm
> >
> > (snipped)
> > > Thanks Ron. Yes that is the information I also received on the
printout
> > > from the financial advisor. I just don't understand why my CC company
> > uses
> > > that instead of Prime Rate. Well maybe I do - LIBOR is usually
higher -
> > and
> > > more volitle - Prime Rate went down - and LIBOR (supposedly) went up.
> >
> > Whatever's been happening recently is highly unusual, and I'd suggest
both
> > not jumping to conclusions and putting the cyncism aside unless there's
a
> > sound reason for it. For instance in January of this year the prime
rate
> > was 6.50%, while the LIBOR 12-month rate was 3.445%. In March, the
> numbers
> > were 5.25% and 2.5133% and again, the prime was the higher of the two.
> >
> > This isn't all that unusal - the prime tends to be 2.5% to 3.5% above
the
> > LIBOR. Of the two, the prime tends to be more volatile - the prime lags
> > decreases in bank cost of capital but immediately reflects increases.
> > Historically, the spread between the two has been increasing, so over
the
> > long term a loan based on the LIBOR will be less expensive than one
based
> on
> > the prime (if the margin - the premium over the index - is the same).
> > (Source: - http://www.finaid.org/loans/prime_libor.phtml )
> >
> > As to why a bank would base it's credit card rates on the LIBOR, my
guess
> is
> > that the LIBOR reflects the market price for money, while the prime
> reflects
> > the Federal Reserve's Federal Funds Target Rate.
> >
> > Concerning volatility, the federal funds target rate is usually reviewed
> > every six weeks, while the LIBOR is published daily. But small jiggles
in
> > the daily rate don't fall into the definition of volatility in my book -
> the
> > price of every commodity fluctuates daily, even hourly, depending on a
> host
> > of factors.
> >
> >
> Well I'm totally confused now. The question came up for me when I got my
> last CC statement. I keep track of the APR rates charged and notice that
it
> had gone up from the last statement - not much but up. And I knew Prime
> Rate had dropped. I called the CC company and was then told that APR was
> based on LIBOR and not Prime Rate. From there on I have just been trying
to
> gather information, And am about to throw up my hands about the whole
> thing.
I don't see how it matters. It's common for variable rate loan (which is
what a credit card is, after all) rates to be based on some index plus a
premium. Whatever index is used, it's beyond your control. Generally, it's
beyond the issuer's control as well. Whether the base index is higher or
lower than the prime doesn't much matter either - the cost to the borrower
can end up being the pretty much the same simply because the premium above
the index can be different.
You can't control the interest **rate** on your credit cards beyond
searching out the best deal for you among the plethora of offers out there.
The best you can do is to try and control the interest you actually pay -
the less you borrow, the sooner you pay it back, the less you'll pay in
interest. Normally, I feel that interest is a reasonable expense to pay -
it lets us have the use of whatever it is sooner rather than later. But
that assumes reasonably settled times and reasonable self-restraint on the
part of the borrower. Times are rather unsettled at the moment.
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> > Thanks Ron. Yes that is the information I also received on the printout
> > from the financial advisor. I just don't understand why my CC company
> uses
> > that instead of Prime Rate. Well maybe I do - LIBOR is usually higher -
> and
> > more volitle - Prime Rate went down - and LIBOR (supposedly) went up.
> Whatever's been happening recently is highly unusual, and I'd suggest both
> not jumping to conclusions and putting the cyncism aside unless there's a
> sound reason for it. For instance in January of this year the prime rate
> was 6.50%, while the LIBOR 12-month rate was 3.445%. In March, the