How inflation changes the real cost of a

2 min read

Real ≈ nominal − inflationPurchasing power

Erodes fixed debtCheaper in real terms

Hurts idle cashReal return can be negative

Amount borrowed (£)

Arrangement & other fees (£)

Annual interest rate (%)

Term (months)

Estimates an annualised cost including fees so you can compare offers like-for-like. Illustrative, not a statutory APR.

Nominal vs real cost

The nominal rate is what you pay; the real rate subtracts inflation. Borrow at 9% with 4% inflation and the real cost is roughly 5% — the fixed repayments buy the lender less over time.

Why fixed borrowing benefits

On a fixed rate, your payments are set in cash terms, so inflation erodes their real value while your revenues (hopefully) rise with prices. That shifts the real burden of the debt down over the term.

The flip side for cash reserves

Inflation works against idle cash. If your reserve earns 4% while inflation runs at 5%, its real value falls. Compare savings on AER and weigh holding cash against using it or investing it.

Factor it into the decision

Use the real rate for long-term borrowing and saving calls. The calculator below helps you model the cash cost; adjust for inflation to see the real picture.

Where Credicorp fits

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

See real vs nominal rate and net-of-tax cost of borrowing.

Frequently asked questions

Does inflation make borrowing cheaper?

On a fixed rate, in real terms, yes — inflation erodes the real value of your fixed repayments. On a variable rate, lenders may raise rates as inflation rises, offsetting the effect.

What is the real interest rate?

The nominal rate minus inflation. It reflects the true change in purchasing power, and is the rate that matters for long-term value.

Should I hold cash or borrow in high inflation?

High inflation erodes idle cash and eases fixed debt in real terms. But weigh the cash cost of borrowing and your risk — it is a judgement, not an automatic answer.