edited body
user253751
• 403
• 3
• 10

"Real interest" means the interest after subtracting inflation. Interest including inflation would be called "nominal interest".

If inflation is 2%, then 1% real interest means 3% nominal interest, which is the interest that is written in the loan contract and is what you actually have to pay. You would have to pay \$200\$300 interest on a \$10000 loan. However, if you put the \$10000 into a savings account that matched inflation, you would have \$10200 at the end of it. So you would have lost \$100 overall.

user253751
• 403
• 3
• 10

"Real interest" means the interest after subtracting inflation. Interest including inflation would be called "nominal interest".

If inflation is 2%, then 1% real interest means 3% nominal interest, which is the interest that is written in the loan contract and is what you actually have to pay. You would have to pay \$200 interest on a \$10000 loan. However, if you put the \$10000 into a savings account that matched inflation, you would have \$10200 at the end of it. So you would have lost \\$100 overall.