Current LIBOR Interest Rates: April 2021

_{Please Note: New variable rate ELFI loans applied for after 7:00 PM EST on January 7, 2022, will use the Prime Rate of Interest appearing in the Money Market section of the Wall Street Journal (WSJ) as the benchmark rate index. Borrowers who have an existing variable rate ELFI loan(s) that use the London Interbank Offered Rate (LIBOR) as the benchmark rate index will continue to have LIBOR as the benchmark rate index on their loans. ELFI will notify borrowers with existing variable rate loans originated prior to 7:00 PM EST on January 7, 2022, of the expected change from LIBOR to an alternative benchmark rate index in the future.}

Have you ever given any thought into how your interest rates are determined? There’s a very precise calculation behind the interest rates on your student loans, car loans, and even your mortgage. 

Your interest rates can fluctuate based on market conditions. Lenders often use the London Interbank Offered Rate (LIBOR) as an index when setting their interest rates. In fact, the Consumer Financial Protection Bureau reported that approximately $1.3 trillion of consumer loans have an interest rate based on the LIBOR. 

Here’s how the LIBOR works, and how it affects your loans. 

What Is LIBOR?

The LIBOR is considered one of the most important rates in all of finance because of how much of an impact it has on different financial products. 

The LIBOR is a money market interest rate that is the current industry standard for the interbank Eurodollar — deposits of U.S. dollars in foreign bank accounts. — market, meaning it’s what banks and financial institutions use when lending to one another. 

The LIBOR is set by the banks and financial institutions. Each day, groups of leading banks submit the interest rate they’re willing to lend at to other financial institutions. The suggested rates cover different currency types and durations, ranging from one night one to 12 months. An average of the submitted rates is calculated to determine the LIBOR. 

There are multiple LIBORs used by banks, but the most common are the one-month and three-month LIBORs. Those are the LIBORs most commonly used by consumer lenders, such as student loan and mortgage companies. Rates are released by the Intercontinental Exchange every London business day, typically at 11:55 a.m BST (British Summer Time). 

What is LIBOR Used For? 

The LIBOR is used for a wide range of financial products, including: 

• Auto loans
• Credit cards
• Home loans
• Home equity lines of credit
• Personal loans
• Student loans

However, the LIBOR can impact more than just consumer loans; it can also affect investments. 

• Alternative investments: More complex and sophisticated investment options, such as collateralized debt obligations, often use the LIBOR.
• Financial derivatives: Derivatives are tradable financial products whose value is based on an underlying asset, such as stocks, commodities, or interest rates. Derivatives allow you to invest by speculating on the price changes of assets. The LIBOR is a popular choice for financial derivatives. 
• Certificates of deposit (CDs): CDs are a type of savings account that holds a specified amount of money for a fixed time period. When your CD matures, you receive the full amount plus interest. Interest rates for CDs are commonly set using the LIBOR. 

The LIBOR can be an indicator of the health of the banking system. If the LIBOR increases, that means that banks view lending to one another as a bigger risk, signaling that the economy may be struggling. When the LIBOR is low, banks feel confident in other companies’ ability to repay their loans. 

How is LIBOR Calculated?

Every day, the Intercontinental Exchange asks the contributor banks how much they would charge other financial institutions for short-term loans. U.S. banks like Bank of America, Citibank, and JPMorgan Chase contribute to the LIBOR. 

In an attempt to prevent market manipulation, the Intercontinental Exchange eliminates the highest suggested rates and the lowest. The Intercontinental Exchange averages the remaining rates. 

The LIBOR is calculated for five currencies: USD, GBP, EUR, CHF, and JPY. 

Lenders generally use the LIBOR flat — the unadjusted rate without a spread added — to set their interest rates on loans and other forms of credit. It’s often used as a base rate or interest rate floor when determining rates. 

LIBOR Transition to SOFR

In the past few years, global markets have changed significantly. However, the LIBOR and its calculation method have been basically unchanged. Many financial experts believe the process is outdated and that the LIBOR isn’t as reliable or credible as it once was. 

As a result, the LIBOR is expected to be replaced by the Secured Overnight Funding Rate (SOFR). The SOFR uses median rates that participants pay to borrow cash on an overnight basis.

The U.S.’s use of the LIBOR is expected to stop at the end of 2021, but that date can change based on how other banks use the LIBOR.  

How LIBOR Rates Affect Student Loans & Student Loan Refinancing

LIBOR rates & student loans go hand in hand. While some lenders use the Federal Reserve interest rate — the Fed — to determine their rates, private student and student loan refinancing lenders base their rates on the LIBOR. However, the Fed and the LIBOR tend to mimic each other’s performance. 

To set your rate, lenders use the LIBOR — usually the three-month LIBOR — plus a margin rate. For example, a lender might charge the LIBOR plus 4%. If the LIBOR was at 1.4%, that means your interest rate would be 5.4%. If the LIBOR was 0.2, your interest rate would be 4.2%. 

The LIBOR can change, causing your interest rate and monthly payments to increase and decrease. 

Historic LIBOR Rates 

ELFI continually monitors the LIBOR rates to ensure its interest rates on private loans and refinancing loans are consistent with market trends. 

To compare today’s LIBOR rates with past rates, check out these links: 

• March 2021 LIBOR Rates
• April 2020 LIBOR Rates
• May 2020 LIBOR Rates
• June 2020 LIBOR Rates
• July 2020 LIBOR Rates
• September 2020 LIBOR Rates

Currently, interest rates are at all-time lows, making it a great time to take advantage of these rates. Use the Find My Rate tool to get a rate quote for private loans or student loan refinancing without affecting your credit score.