What is a LIBOR rate loan?


Quick Answer

A LIBOR rate loan is a loan with an interest rate tied to the London Interbank Offered Rate, explains Bankrate. These loans include many adjustable-rate mortgages and private student loans. The LIBOR rate is based on the rates of 16 international banks.

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Full Answer

People with adjustable-rate mortgages pay a fixed amount at the beginning of the loan, then pay an adjustable amount based on the LIBOR rate, states Bankrate. If the LIBOR is low, the mortgage payment decreases, and when LIBOR rises, the mortgage payment increases.

Private student loans tied to the LIBOR also have changing payment amounts based on the international interest rate.

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