The Fisher equation says that the interest rate charged for a loan will include expected inflation plus a real rate of interest.2 The inflation part of the interest rate ensures that a lender gets their initial capital back when the loan is repaid; if that does not happen, then the loan is actually partly a gift because, thanks to inflation, a portion of the loan is not being paid back.
On top of that is a small payment to the lender because the capital cannot be used for other purposes while it is with the borrower. Furthermore, 2  This equation, also called the Fisher effect, was originally set out by Irving Fisher in his 1930 classic, The theory of interest.