Definition & Meaning:

How does a bank try to make sure that their existing customers use them when they want a take out a loan?

They often reward them for being loyal by offering them a lower interest rate than they would normally charge. This reduced/lower rate of interest is called a 'preferential rate'. Normally at most, a 'preferential interest rate' on a loan is a couple of percentage points lower than a bank's 'standard interest rate'.

Not only do banks offer existing customers a 'preferential interest rate' when they take out a new loan, but also when they open a new type of savings account with the bank (they receive a higher interest rate on their money than the standard rate).

From my own experience, you can often find a better rate of interest for either a loan or savings accounts from another bank or lending institution than what you would get with a 'preferential rate' from your existing bank. So it's important to shop around to get the best deal.

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Also Called:

Preferential Rate.

Related Vocabulary:

Annual Percentage Rate, Redemption Penalties, Fixed Interest Rate, Variable Interest Rate.

To learn more vocabulary connected to loans, you can do a free online exercise on bank loan vocabulary.