Finance house base rate
WHAT IS FINANCE HOUSE BASE RATE
Finance House Base Rate, also called as FHBR, is basically a rate based on liBOR or London Inter Bank Offered Rate that is charged on borrowings by the finance house.FHBR provides a rate to all the FLA or Finance and Leasing Association companies in United Kingdomace> for calculating the lending charges in various types of commercial and industrial contracts.FHBR acts as the base rate in all above contracts.Rates have to be changed many times during the agreement period and it is facilitated by means of FHBR only.This rate is also used by many non-FLA members in different types of transactions.
As far as the calculation of this rate is concerned, it is calculated in the end of each month by means of average of the cost for the 3-month money lending in the inter-market, over the 8 previous weeks.The figure thus obtained is also rounded to the next half point so as to get the appropriate Finance House Base Rate.The whole process mentioned above does not contain any type of discretionary element and is purely arithmetical.Last Friday of each month is the day for the calculation of FHBR and the rate calculated becomes effective from the very first day of the next month.FHBR is daily published in various finance newspapers and other media.Finance House Base Rate for the month of December 2007 had been fixed at 6.5%.FHBR play a very important role in the banking transactions and in stocking loans provided to the dealers.However, it has to be understood properly here that FHBR should be seen as a benchmark only.All the members of FLAace> are free to use this rate as the benchmark or to calculate their individual interest rates.
As per the recent reports provided by FLA, the FHBR for the month of January 2008 has been fixed at 6.5%.Thus, no changes have been made with respect to December 2007.It was announced on 28th December, last Friday of month of December 07.It is important to note here that central banks have intervened for the improvement in liquidity in the financial markets in the middle of month of December.Announcement of FHBR for the month January 08 has eased the upward pressure faced by inter-bank rate.
There are many implications of Finance House Base Rate.In hire purchase agreement, low FHBR means low deposits have to be made and monthly payments would also be reduced.The interest rate for the hire purchase is fixed at the start of agreement and these do not vary during the term, irrespective of the changes made in interest rates afterwards.Lease purchase agreements are linked to FHBR and the monthly payments are calculated by way of margin above the FHBR rate.These payments then remain fixed.When the agreement term expires, a balancing calculation, which is also linked to FHBR, is made so as to know the way in which interest rates have moved.
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