A ceiling on a charge; for example, an interest-rate cap would set a maximum interest rate to be charged on a loan, regardless of prevailing general interest-rate levels.
A financial arrangement in which both the maximum (cap) and minimum (floor) rate of interest payable on a loan are fixed in advance, offering protection against interest rate fluctuations.
In finance, a floor refers to the minimum interest rate set by the lender on a loan or other obligation. This ensures that the interest rate will not fall below a certain level, which provides a safety net for lenders' returns. It contrasts with a cap, which sets an upper limit on the interest rate.
