Nominal debts have not been adjusted for factors like inflation. It refers to the current value of the debt.

## Significance

When looking at how much a debt eventually will cost, you need to consider other factors. For example, the true cost of a mortgage must factor in inflation, tax deduction benefits and home appreciation.

Video of the Day

## Real debt value

The real value of a debt reflects external factors.

## Nominal debt example

Let's say you borrow $100 at 10 percent interest to be paid in a year. At the end of a year, the nominal value of that loan is $110. The lender made a $10 profit.

## Real debt example

Using that same example, let's say the annual inflation rate was 3 percent. That means your $100 was worth $103 at year's end. You pay the lender $110 according to the terms of the loan, which means that once the debt is adjusted for its real value of $103, the lender actually made $7. His real return was 7 percent, not 10 percent.

## Factors

Market forces, alternative costs and overhead are examples of additional factors that affect real value.