base rate

Every family has that one uncle who will not go below a certain price, no matter how much you beg. Sell him a car for less than his number and he will simply smile and say no, my brother, that one cannot happen. Banks have that same fixed number, and they call it the Base Rate.

It is the lowest interest rate a bank charges its most trusted borrowers, the ones with the cleanest credit history and the least risk of disappearing with the money. Everyone else gets that base rate plus something extra, depending on how risky the bank thinks they are.

Say a bank in Lagos sets its base rate at 20 percent. A large, well established manufacturing company with years of steady cash flow might borrow at exactly that rate. A small trader just starting out, with no long credit history, might get offered 24 or 25 percent instead, because the bank is pricing in the extra risk of lending to someone less proven.

In the United Kingdom, banks often talk about a base rate too, but there it is usually tied closely to the Bank of England's own rate, which trickles down into mortgages and savings accounts. When that central rate moves, banks adjust their own base rate, and suddenly everyone's mortgage repayment either breathes easier or tightens.

For someone sending money home to support a business in Nigeria, the base rate matters more than it looks. If your sister's shop is applying for a loan to restock, the rate she is quoted starts from the bank's base rate and climbs from there, so understanding that starting point helps her negotiate and helps you both judge whether the offer is fair.