★ MONEY · DEBT · TAX
After-tax interest is $5,700.00 a year, an after-tax rate of 5.70%. A $100,000 loan at 7.5% costs $7,500.00 a year in interest, and at a 24% tax rate the tax shield is worth $1,800.00. Enter your loan, rate and tax rate to find what your debt really costs.
Interest on deductible debt is paid with pre-tax money, so the taxman picks up part of the bill. The after-tax cost is the pre-tax rate times one minus the marginal tax rate — and the difference is the tax shield, the interest the deduction saves. This calculator works out the interest, the shield, the after-tax interest and the after-tax rate, and shows the rate and loan that hit any target.
Debt costs what you pay in interest, less what the tax deduction gives back. The interest is the loan times the pre-tax rate. The tax shield is the interest times the marginal tax rate — the rate on your last dollar of income, not your average rate. The after-tax interest is the interest minus the shield, and the after-tax rate is the pre-tax rate times one minus the tax rate. At the defaults — a $100,000 loan, a 7.5% pre-tax rate and a 24% marginal tax rate — the interest is $100,000 × 7.5% = $7,500.00 a year. The shield is $7,500.00 × 24% = $1,800.00. The after-tax interest is $7,500.00 − $1,800.00 = $5,700.00 a year, or $475.00 a month, and the after-tax rate is 7.5% × (1 − 24%) = 5.70%.
The shield only applies when the interest is actually deductible. Business debt is deductible, and mortgage interest is deductible when you itemize. If you take the standard deduction instead of itemizing, your mortgage interest buys you no shield at all — and then the after-tax cost equals the pre-tax cost: 7.5%, not 5.70%. The same goes for personal loans, car loans and credit cards: the interest is not deductible, so there is no shield to count. Check whether your interest is deductible before you use the after-tax rate for anything, because the whole point of the calculation is the deduction.
| Case | Interest | Tax shield | After-tax interest | After-tax rate |
|---|---|---|---|---|
| Default ($100,000, 7.5%, 24%) | $7,500.00 | $1,800.00 | $5,700.00 | 5.70% |
| Pre-tax rate 5% | $5,000.00 | $1,200.00 | $3,800.00 | 3.80% |
| Pre-tax rate 10% | $10,000.00 | $2,400.00 | $7,600.00 | 7.60% |
| Pre-tax rate 12% | $12,000.00 | $2,880.00 | $9,120.00 | 9.12% |
| Tax rate 12% | $7,500.00 | $900.00 | $6,600.00 | 6.60% |
| Tax rate 32% | $7,500.00 | $2,400.00 | $5,100.00 | 5.10% |
| Tax rate 37% | $7,500.00 | $2,775.00 | $4,725.00 | 4.73% |
| Tax rate 22% | $7,500.00 | $1,650.00 | $5,850.00 | 5.85% |
| Loan $250,000 | $18,750.00 | $4,500.00 | $14,250.00 | 5.70% |
| Loan $50,000 | $3,750.00 | $900.00 | $2,850.00 | 5.70% |
| Loan $500,000 | $37,500.00 | $9,000.00 | $28,500.00 | 5.70% |
| Tax rate 0% | $7,500.00 | $0.00 | $7,500.00 | 7.50% |
Setup: loan $100,000, pre-tax rate 7.5%, marginal tax rate 24%.
Line 1 — the annual interest. $100,000 × 7.5% = $7,500.00 a year.
Line 2 — the tax shield. $7,500.00 × 24% = $1,800.00. That is the tax the deduction saves.
Line 3 — the after-tax interest. $7,500.00 − $1,800.00 = $5,700.00 a year.
Line 4 — the after-tax rate. 7.5% × (1 − 24%) = 5.70%. Check: $100,000 × 5.70% = $5,700.00, the same after-tax interest.
Line 5 — the monthly after-tax interest. $5,700.00 ÷ 12 = $475.00 a month.
Reverse: the pre-tax rate for a 4.00% after-tax rate at 24% tax is 5.26% (exact 5.2632% — 4.00% ÷ (1 − 24%)); the tax rate for a 6.00% after-tax rate at 7.5% pre-tax is 20.00% (1 − 6.00% ÷ 7.5%); the loan for $10,000 after-tax annual interest is $175,438.60 (exact 175438.5965 — $10,000 ÷ (7.5% × 76%)); the highest pre-tax rate keeping the after-tax rate at or below 5.00% at 24% tax is 6.58% (exact 6.5789% — 5.00% ÷ 76%); the tax shield on $12,000 interest at 32% is $3,840.00; the after-tax rate at 9% pre-tax and 35% tax is 5.85%; and the loan for $2,000 after-tax interest at 6% pre-tax and 25% tax is $44,444.44 (exact 44444.4444), with pre-tax interest $2,666.67 and a shield of $666.67.
Pre-tax rate 5%: the interest is $5,000.00, the shield is $1,200.00 and the after-tax interest is $3,800.00, a rate of 3.80%. A cheaper loan is cheaper after tax in the same proportion.
Pre-tax rate 10%: the interest is $10,000.00, the shield is $2,400.00 and the after-tax interest is $7,600.00, a rate of 7.60%.
Pre-tax rate 12%: the interest is $12,000.00, the shield is $2,880.00 and the after-tax interest is $9,120.00, a rate of 9.12%.
Tax rate 12%: the shield is only $900.00, so the after-tax interest is $6,600.00 and the rate is 6.60%. A low tax rate means a small shield, so the after-tax cost stays close to the pre-tax cost.
Tax rate 32%: the shield is $2,400.00, so the after-tax interest is $5,100.00 and the rate is 5.10%.
Tax rate 37%: the shield is $2,775.00, so the after-tax interest is $4,725.00 and the rate is 4.73%. At the top rate, more than a third of the interest is paid by the taxman.
Tax rate 22%: the shield is $1,650.00, so the after-tax interest is $5,850.00 and the rate is 5.85%.
Loan $250,000: the interest is $18,750.00, the shield is $4,500.00 and the after-tax interest is $14,250.00, still a rate of 5.70%. The loan size changes the dollars, never the rate.
Loan $50,000: the interest is $3,750.00, the shield is $900.00 and the after-tax interest is $2,850.00, a rate of 5.70%.
Loan $500,000: the interest is $37,500.00, the shield is $9,000.00 and the after-tax interest is $28,500.00, a rate of 5.70%.
Tax rate 0%: the shield is $0.00, so the after-tax interest is the full $7,500.00 and the after-tax rate is 7.50% — the same as the pre-tax rate. No tax, no shield.
Reverse — the lines that matter: a 4.00% after-tax rate needs a 5.26% pre-tax rate at 24% tax; a 6.00% after-tax rate needs a 20.00% tax rate at 7.5% pre-tax; $10,000 of after-tax interest needs a $175,438.60 loan; the pre-tax rate must stay at or below 6.58% to keep the after-tax rate at or below 5.00% at 24% tax; and $2,000 of after-tax interest at 6% and 25% needs a $44,444.44 loan.
The WACC connection: the after-tax cost of debt is the debt term in the weighted average cost of capital: WACC = (E/V) × cost of equity + (D/V) × rD × (1 − T). The rD(1 − T) in that formula is exactly the after-tax rate on this page — 5.70% at the defaults. A company that borrows at 7.5% and pays 24% tax counts its debt at 5.70% when it prices a project, because the interest is deductible and the equity is not.
The model assumes the interest is fully deductible at the marginal tax rate you enter, and that the rate is flat: it does not model tax brackets, caps on deductible interest, or the standard deduction. It assumes simple annual interest on the full loan — check that, because an amortizing loan pays less interest each year as the balance falls, so the shield shrinks with it. It assumes the tax rate you enter is your marginal rate, not your average rate: using the average rate understates the shield. Rounding convention: money is rounded to cents, rates to two decimals with the exact value to four where stated, and all figures are computed from unrounded values, rounded only for display.
| Output | Formula | What it means |
|---|---|---|
| Annual interest | loan × pre-tax rate | $7,500.00. |
| Tax shield | interest × marginal tax rate | $1,800.00. |
| After-tax interest | interest − shield | $5,700.00 a year. |
| After-tax rate | pre-tax rate × (1 − tax rate) | 5.70%. |
| Monthly after-tax interest | after-tax interest ÷ 12 | $475.00 a month. |
| Pre-tax rate for 4.00% after-tax | 4.00% ÷ (1 − 24%) | 5.26% (exact 5.2632%). |
| Tax rate for 6.00% after-tax | 1 − 6.00% ÷ 7.5% | 20.00%. |
| Loan for $10,000 after-tax interest | $10,000 ÷ (7.5% × 76%) | $175,438.60 (exact 175438.5965). |
| Max pre-tax rate for after-tax ≤ 5.00% | 5.00% ÷ (1 − 24%) | 6.58% (exact 6.5789%). |
| Tax shield on $12,000 at 32% | $12,000 × 32% | $3,840.00. |
| After-tax rate at 9%, 35% tax | 9% × (1 − 35%) | 5.85%. |
| Loan for $2,000 after-tax interest | $2,000 ÷ (6% × 75%) | $44,444.44 (exact 44444.4444), interest $2,666.67, shield $666.67. |
| Pre-tax rate 5% | same model, 5% pre-tax | Interest $5,000.00, shield $1,200.00, after-tax $3,800.00, rate 3.80%. |
| Pre-tax rate 10% | same model, 10% pre-tax | Interest $10,000.00, shield $2,400.00, after-tax $7,600.00, rate 7.60%. |
| Pre-tax rate 12% | same model, 12% pre-tax | Interest $12,000.00, shield $2,880.00, after-tax $9,120.00, rate 9.12%. |
| Tax rate 12% | same model, 12% tax | Interest $7,500.00, shield $900.00, after-tax $6,600.00, rate 6.60%. |
| Tax rate 32% | same model, 32% tax | Interest $7,500.00, shield $2,400.00, after-tax $5,100.00, rate 5.10%. |
| Tax rate 37% | same model, 37% tax | Interest $7,500.00, shield $2,775.00, after-tax $4,725.00, rate 4.73%. |
| Tax rate 22% | same model, 22% tax | Interest $7,500.00, shield $1,650.00, after-tax $5,850.00, rate 5.85%. |
| Loan $250,000 | same model, $250,000 loan | Interest $18,750.00, shield $4,500.00, after-tax $14,250.00, rate 5.70%. |
| Loan $50,000 | same model, $50,000 loan | Interest $3,750.00, shield $900.00, after-tax $2,850.00, rate 5.70%. |
| Loan $500,000 | same model, $500,000 loan | Interest $37,500.00, shield $9,000.00, after-tax $28,500.00, rate 5.70%. |
| Tax rate 0% | same model, 0% tax | Interest $7,500.00, shield $0.00, after-tax $7,500.00, rate 7.50%. |
The math is exact for the numbers you enter: the interest is the loan times the pre-tax rate, the shield is the interest times the marginal tax rate, and the after-tax rate is the pre-tax rate times one minus the tax rate. What the model cannot do is know your tax situation: check whether the interest is deductible at all, because personal-loan and credit-card interest is not, and mortgage interest only helps if you itemize — with the standard deduction the shield is $0.00 and the after-tax rate is the pre-tax rate. It assumes simple annual interest on the full loan and a flat marginal rate, so an amortizing loan and a progressive tax schedule both make the real shield smaller over time. For the tax bracket your income sits in, see 2026 federal tax brackets; for the debt-to-equity side of the same question, see debt-to-equity ratio calculator.
Bright Side Kit. "After-Tax Cost of Debt Calculator: Rate & Shield 2026." https://brightoolbox.com/after-tax-cost-of-debt-calculator/ Accessed October 25, 2026.After-tax rate = pre-tax rate × (1 − marginal tax rate). First work out the annual interest: loan times pre-tax rate. Then work out the tax shield: interest times marginal tax rate. Then subtract: after-tax interest = interest − shield. At the defaults the interest is $100,000 × 7.5% = $7,500.00, the shield is $7,500.00 × 24% = $1,800.00, and the after-tax interest is $7,500.00 − $1,800.00 = $5,700.00, a rate of 7.5% × 76% = 5.70%.
$1,800.00 a year at a 24% tax rate. The interest is $7,500.00 a year and the shield is 24% of it: $7,500.00 × 24% = $1,800.00. At 32% the shield is $2,400.00, at 37% it is $2,775.00 and at 12% it is only $900.00. The shield grows with the tax rate — which is why debt is cheapest, after tax, for the highest earners.
Business debt is deductible, and mortgage interest is deductible when you itemize. If you take the standard deduction instead of itemizing, your mortgage interest buys you no shield at all — the after-tax cost is then the pre-tax cost: 7.5%, not 5.70%. Personal loans, car loans and credit cards are not deductible at all, so there is no shield to count. Check whether your interest is deductible before you use the after-tax rate for anything.
5.26%. The pre-tax rate is the after-tax rate divided by one minus the tax rate: 4.00% ÷ (1 − 24%) = 5.2632%, so 5.26% to two decimals. At that pre-tax rate a $100,000 loan costs $5,263.16 a year before tax and $4,000.00 after the $1,263.16 shield.
It is the debt term: WACC = (E/V) × cost of equity + (D/V) × rD × (1 − T). The rD(1 − T) in that formula is exactly the after-tax rate on this page — 5.70% at the defaults. A company that borrows at 7.5% and pays 24% tax counts its debt at 5.70% when it prices a project, because the interest is deductible and the equity return is not. That is why companies with more debt can show a lower WACC — up to the point where the extra debt starts to cost more than it saves.
Then the after-tax rate equals the pre-tax rate: 7.50%, and the shield is $0.00. With no tax there is nothing to deduct against, so the interest costs the full $7,500.00 a year on a $100,000 loan at 7.5%. The same applies to any non-deductible interest, whatever your tax rate: the shield is zero and the after-tax cost is the pre-tax cost.