The full name of LPR is Loan Primate, which means "Loan Primate". This interest rate was originally used for corporate loans, and then gradually began to reform. It is the loan interest rate provided by financial institutions to the best quality customers, so for ordinary lenders, they do not need to accept various interest rate changes and settle directly at the most favorable interest rate. For lenders and enterprises, it is to reduce financing costs and promote interest rate marketization.
At present, the formation of LPR is determined by medium-term loan facility (MLF), long-term loan (housing loan) and quotation bank, and the quotation frequency is changed from daily quotation to monthly quotation, thus forming the formation system of LPR. The formulation of this system is a guiding process, only the loan interest rate is reformed, but the deposit interest rate is not, which shows that it is to guide funds, with lower cost, which will be more conducive to corporate loans.
Due to the long-standing dual interest rate problem in China, there are regulated loan interest rates and market-oriented interest rates that are completely determined by market supply and demand. One track is dominated by the national bank, representing the official interest rate, and the other track is dominated by non-bank financial institutions, representing the market-oriented interest rate. There is no doubt that it is passive in this process, and the interest rate of each bank may be different. This reform is to promote the unification of this interest rate.
Generally speaking, LPR is the transmission mechanism of interest rate. The original interest rate will cause financing difficulties for some small and medium-sized enterprises. In particular, some banks will take the official loan benchmark interest rate as the standard and multiply it by a certain multiple as their lower interest rate, which hinders the transmission of market interest rate to the real economy and is difficult to meet the needs of financial market development, so these reasons have promoted the birth of LPR.
Which is better, LPR or fixed interest rate?
After choosing a fixed interest rate, your mortgage interest rate will remain the same as the current interest rate and will not be affected by changes in LPR. If you choose LPR, your future mortgage interest rate will change with the change of LPR, which will affect the monthly payment. When LPR decreases, the repayment amount will decrease, but if LPR increases, the repayment amount will also increase.
The central bank previously explained that the two conversion methods have their own advantages, and the specific choice depends on their own judgment, especially the judgment of the future interest rate trend. If we think that LPR will decline in the future, it will be better to refer to LPR pricing instead; If you think LPR may rise in the future, it will be beneficial to switch to a fixed interest rate.