Nominal Interest Rate

The nominal interest rate is the rate stated on a bond or loan. It represents the actual cost that borrowers must pay to lenders to borrow their money. Nominal interest rates do not take into consideration economic factors like inflation. For example, if the nominal interest rate for a borrower is 5%, the borrower will have to pay 5 cents for every dollar borrowed. Borrowers are almost always presented with interest rates that are nominal instead of real or effective unless explicitly stated otherwise.