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Base Rate
Practical Law Glossary Item 7-382-3261 (Approx. 2 pages)
Glossary
Base Rate
Also known as alternate base rate and ABR. A floating interest rate reference rate used by a lender in a loan agreement. In general terms, the base rate is the rate per annum equal to the greatest of:
- The prime rate (the variable annual rate of interest so designated from time to time by that lender in the US as its "prime rate");
- 0.50% above the federal funds effective rate; and
- 1.0% above Adjusted Term SOFR for an Adjusted Term SOFR rate loan with a one-month interest period.
The borrower typically pays interest on a loan at a rate equal to the base rate plus an agreed applicable margin.
For more information on base rates, see Standard Clauses, Loan Agreement: Borrowing Mechanics.