Business calculators

After-tax Cost of debt Calculator

Looking to save on your taxes? This cost of debt calculator can help! By factoring in your tax rate, it can estimate the after-tax cost of debt for you.

Understanding cost of debt

What is the cost of debt?

The cost of debt is the interest a borrower pays on a debt. This interest payment is paid to the debt holder, aka lender. The loan’s yield to maturity (YTM) is the total rate of return earned by the lender during the life of the loan. 

The lender sets the interest rate based on the company’s capital structure, credit rating, cash flow, valuation, and other factors. Companies with better financial performance usually get lower interest rates and sometimes more favorable lending terms.

What is the after-tax cost of debt?

Interest alone does not represent the total cost of debt because most interest expenses for businesses (and some consumer debt like mortgages) are tax deductible. In other words, it lowers a business’s taxable income.

The after-tax cost of debt represents the total interest paid on debt minus savings on your income taxes. In other words, you’re adjusting your total cost of debt to account for the effects of your tax rate.  

Examples of cost of debt

Your cost of debt is any interest expense you pay on any business loan. That can include interest payments for 

  • Car loans
  • Real estate loans
  • Equipment financing
  • Business lines of credit
  • SBA loans
  • Credit cards

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Common cost of debt questions

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