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. The cost of debt is the rate a company pays on its debt, such as bonds and loans. Cost of debt is one part of a company’s capital structure, with the other being the cost of equity. Calculating the cost of debt involves finding the average interest paid on all of a company’s debts.
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