What this tool does
Computes the real cost of borrowing when interest is tax-deductible: the nominal rate multiplied by (1 − tax rate).
How to use it
- Enter the nominal borrowing rate as a percentage.
- Enter the applicable corporate or marginal tax rate.
- Run it for the after-tax cost of debt.
Worked example
A 6% rate at a 25% tax rate gives an after-tax cost of 6 × 0.75 = 4.5%.
Calculation method
After-tax cost of debt
rate*(1-tax/100)Frequently asked questions
- Why does tax lower the cost?
- Interest reduces taxable income, so you pay less tax and the real burden falls. The result reflects that shield.
- Does it apply to a loss-making company?
- Not in the same way. With no taxable income the deduction does not help this period. The tool does not assess deductibility, so entering a rate of 0 is more realistic there.
What this tool does not cover
The model assumes interest is fully deductible. Deduction caps, deferral effects, fees, and issuance costs are not reflected.