Image: Getty. Illustration: Chloe Krammel
It s time to pull out those loan documents from your bank. And we totally understand if reading them makes your eyes glaze over. But because of an upcoming technical change to the way interest rates are set which could have an impact on how much you repay it s worth another look. There is good news, though: Just search for the word Libor, and you ll know pretty quickly if you need to take action.
Libor stands for London interbank offered rate, and it s going to be retired at the end of 2021. Libor is the interest rate that up to 16 banks charge each other for short-term, unsecured loans. Since there have been relatively few transactions of this type, the banks meaning, individual bankers often make estimates instead. That makes the index vulnerable to being manipulated. And it was. In 2008, manipulation of Libor was one of the factors that exacerbated the global financial crisis. Bankers were arrested and later sentenced to jail.