When a Bank Tells You to Review Your Interest Rate: Should You Compare It to the New Loan Rate of 1.999% or the Stock Rate of 1.424%?
When your bank representative tells you they want to review your interest rate at the next renewal, the first thing a business owner does is check the national average on their smartphone. The Average Contracted Interest Rates on Loans and Discounts, published monthly by the Bank of Japan, usually appears at the top of the search results.
However, that figure is not just one number. There are new loans versus stock, short-term versus long-term, and domestic banks versus credit unions. Faced with a table, you might hesitate, wondering which one applies to your own borrowing.
Upon investigation, you will find that this average is not limited to business loans. If you apply the wrong one, your estimates will be significantly off.
The Bank of Japan’s average includes housing loans and loans to the government
The Average Contracted Interest Rates on Loans and Discounts is a figure published monthly by calculating the weighted average of interest rates on yen loans from domestic banks and credit unions based on the outstanding loan balance. While loans to financial institutions are excluded, it includes not only loans to general corporations but also personal housing loans and loans to national and local governments.
It is not a figure compiled solely from small and medium-sized enterprise business funds. Because it is an average that mixes the creditworthiness of borrowers and the duration of loans, some companies borrow at rates higher than the average, while others borrow at lower rates.
According to the Bank of Japan’s August 2026 report, the average interest rate for new loans of one year or longer from domestic banks was 1.999% per annum, and for credit unions, it was 2.209%. These are the figures that come up when discussing interest rates for future borrowing.
The benchmark for comparison changes depending on whether you are borrowing now or looking at existing loans
The table lists both new loans and stock. New loans represent the average of loans executed during the month, while stock represents the average of all loans with an outstanding balance at the end of the month.
In August 2026, the long-term new loan rate for domestic banks was 1.999%, while the stock rate was 1.424%. There is a difference of 0.575 percentage points. In August 2022, the new loan rate was 0.766% compared to the stock rate of 0.749%, which were almost identical. That gap has widened over four years. Because the stock rate includes loans made in the past at lower interest rates that remain on the books, it rises more slowly than the new loan rate.
Therefore, the benchmark for the conditions of a new loan is the new loan rate of 1.999%. When checking the interest rate of your current loan, the stock rate of 1.424% is the benchmark. If you only look at the stock rate and assume the average is in the low 1% range, you will underestimate the level at which you will be borrowing.
The new loan rate fluctuates monthly depending on whether large-scale loans are included. From March to August 2026, the long-term new loan rate for domestic banks moved between 1.790% and 2.066%. It is safer to look at the movement over several months rather than judging by a single month’s figure.
How does a 2.0% difference in interest rates affect the interest on a 5 million yen loan over 5 years?
You can get a sense of the difference by converting it into yen. Assuming you repay 5 million yen over 5 years with equal monthly principal and interest payments, the interest at 2.0% per annum is 258,328 yen.
At 2.5% per annum, it is 324,208 yen, an increase of 65,880 yen. At 3.0% per annum, it is 390,607 yen, a difference of 132,279 yen. Just a 0.1 percentage point difference changes the interest by approximately 13,000 yen.
Applying the Bank of Japan’s domestic bank long-term new loan rate of 1.999%, the interest is 258,197 yen. If it were the 0.766% rate from August 2022, four years ago, it would have been 97,957 yen. The interest on the same 5 million yen loan over 5 years has increased by approximately 2.6 times.
The basis for these figures is the Bank of Japan’s monthly publication, and the calculation is a simple simulation assuming the monthly interest rate is one-twelfth of the annual rate. The actual repayment amount will vary slightly due to the lender’s rounding practices.
Even if you can borrow at the average rate, it is not necessarily cheaper than government-affiliated financial institutions or Marukei loans
Let’s compare the Bank of Japan’s average with the interest rates of public loans for the same 5 million yen over 5 years.
If you could borrow at the Bank of Japan’s average rate, the interest for a domestic bank loan would be 258,197 yen. The standard interest rate for small and medium-sized enterprise business loans from the Japan Finance Corporation (3.20% for 5 years or less) results in 417,312 yen, which is 159,115 yen more than the average. The special interest rate for Marukei loans (3.05%) results in 397,276 yen, a difference of 139,079 yen.
However, the average rate is only available to average borrowers. Small businesses that have been in operation for a short time may not necessarily be able to borrow at the same rate.
Another point that is easy to overlook is the guarantee fee. For loans backed by the Credit Guarantee Corporation, the guarantee fee is added to the interest. Calculating based on the Tokyo Credit Guarantee Corporation’s rates, the guarantee fee for a 5 million yen, 5-year loan is 41,250 yen for Category 9 and 174,625 yen for Category 1.
When you add the guarantee fee to the average interest rate, the total becomes 299,447 yen for Category 9 and 432,822 yen for Category 1. The 432,822 yen for Category 1 is higher than the 417,312 yen standard interest rate for JFC’s small and medium-sized enterprise loans. If you decide whether a rate is cheap or expensive by just looking at the interest rate figures, you will miss this reversal.
Consolidate your borrowing interest rates into a single weighted average figure
If you have multiple loans, calculate and compare the average weighted by the balance. The formula is simply to multiply the balance of each loan by its interest rate, add them up, and divide by the total balance.
For example, consider a company that has borrowed 10 million yen from a bank at 1.8% per year and 5 million yen from JFC at 3.05% per year. 1.8% of 10 million yen is 180,000 yen, and 3.05% of 5 million yen is 152,500 yen. Adding these together gives 332,500 yen, and dividing by the total balance of 15 million yen results in approximately 2.217%.
Compare this 2.217% with the stock rate for domestic banks of 1.424% or credit unions of 1.796%. If your rate is higher than the average, ask your lender why it is affecting your interest rate. The main points to consider are the presence of collateral and guarantees, the number of years since founding, and the content of your financial statements.
Being higher than the average does not necessarily mean you are at a disadvantage. The Bank of Japan’s stock data includes items like housing loans, and the collateral and company sizes vary. For loans with a guarantee association, you must look at the total, including the interest plus the guarantee fee.
Use the difference from the average as a trigger for a review
Use the difference from the average as a starting point to talk to your lender. Whether or not to refinance should be decided based on the total amount, including the proposed interest rate and guarantee fee.
The same applies when a bank representative notifies you of a review. Once a new interest rate is presented, apply it to your balance and term to calculate the total amount, and look at the difference from your current terms in yen. A difference of 0.5 percentage points translates to an estimate of 65,880 yen for a 5 million yen, 5-year loan.
When repayment seems likely to become difficult, consulting your bank early about changing repayment terms before negotiating interest rates will leave you with more options.
Regarding the JFC system itself, there is also an article organized by how to choose a branch.
▶ Which JFC branch should you consider for a loan?
Summary
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The Bank of Japan’s average includes housing loans and government loans. It is not the interest rate for business loans alone.
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In August 2026, the new long-term rate for domestic banks was 1.999%, and the stock long-term rate was 1.424%. Compare new loans to the new rate and existing loans to the stock rate.
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For a 5 million yen, 5-year loan, a 1 percentage point difference in interest rate changes the interest by 132,279 yen.
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For guaranteed loans, a guarantee fee is added to the interest. The 432,822 yen for Category 1 exceeds the JFC standard interest rate of 417,312 yen.
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Calculate the average of your interest rates weighted by balance, and use the difference as a trigger for a review.
Use the average figure only as a benchmark, and make your decision based on the total amount presented.