What is the 'Cost of Debt'?

Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Cost of Debt The cost of debt is the effective interest rate a company pays on its debts. It's the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking taxes into account. However, the difference in the cost of debt before and after taxes lies in the fact that interest expenses are deductible. Read More » Related to "Cost of Debt" Investors Need a Good WACC Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality. Read More » What is the Formula for Weighted Average Cost of Capital (WACC)? Weighted average cost of capital (WACC) is the average after-tax cost of a company's various capital sources used to finance the company. Read More » Do companies measure their cost of debt with before- or after-tax returns? Understand the before and after-tax calculations of cost of debt capital and how each is useful in deciding between funding sources. Read More » SPONSORED BY SMARTASSET Financial Advisor Mistakes to Avoid Choosing a financial advisor is a major decision that can determine your financial trajectory for years to come. SmartAsset offers tips on common mistakes to avoid. Learn More » Related Definitions Interest Expense An interest expense is the cost incurred by an entity for borrowed funds. Read More » Deductible For taxes, a deductible is the expenses subtracted from adjusted gross income for the determination of taxing liability. Read More » Capital Structure Capital structure is how a firm funds its operations and growth, combining long-term debt, specific short-term debt, common equity and preferred equity. Read More » Cost Of Equity The cost of equity is the rate of return required on an investment in equity or for a particular project or investment. Read More » CONNECT WITH INVESTOPEDIA Email sent to: geezers.mail@gmail.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy