What happens if interest rates go down? Will Private Credit returns fall too?
Private credit loans are typically structured with floating interest rates. That means the interest borrowers pay — and the returns investors earn — adjust based on market rates. So yes, if interest rates fall, part of your return may decrease.
But there’s more to the story: Private credit loans also include something called a credit spread. This is a fixed premium added on top of the base rate to account for the borrower’s credit risk. Even if interest rates drop, the credit spread usually stays the same — helping cushion the impact on your returns.
So while returns may dip slightly in a lower-rate environment, they generally remain attractive because of that stable credit spread.