As of yesterday, Tennessee has set a new bar for loan interest rates. According to a statement by the Department of Financial Institutions, Commissioner Greg Gonzales has announced that the maximum effective formula rate of interest for loans in Tennessee will now be 11.75 percent per annum. This decision aligns with a law that mandates weekly updates to reflect changes in the market.

The interest rate, which is to directly impact borrowers, hinges on the weekly average prime loan rate - which currently stands at 7.75 percent, as reported by the Federal Reserve. The new rate will include an additional 4 percent cap over this base number. However, it is important to remember that these rates stand only until the Federal Reserve shifts the average prime loan rate, promising to dynamically adjust as the economic landscape continues to rapidly change.

This decision is rooted in a law that dates back to the early 80s - Chapter 464, Public Acts of 1983 - requiring the Commissioner of Financial Institutions to regularly adjust the state's interest rates to reflect the fluctuating economic conditions. Commissioner Gonzales' announcement adheres firmly to this piece of legislature, ensuring transparency and regulation in the borrowing market.

This change indicates that the cost of credit is not fixed, but may vary in response to adjustments made by the Federal Reserve to the prime rate.