1. What is the Daily Interest Formula?

The daily interest formula calculates the interest accrued on a loan or investment for a single day. It's particularly useful for understanding daily borrowing costs or investment returns.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( P \) — Principal amount (currency)
• \( R \) — Annual interest rate (decimal)
• \( I \) — Daily interest amount (currency)

Explanation: The formula divides the annual interest by 365 days to calculate the daily interest amount based on the principal.

3. Importance of Daily Interest Calculation

Details: Calculating daily interest helps borrowers understand their daily cost of borrowing and allows investors to calculate daily returns. It's essential for accurate financial planning and loan management.

4. Using the Calculator

Tips: Enter the principal amount in currency units and the annual interest rate as a decimal (e.g., 0.05 for 5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 instead of 360?
A: Dividing by 365 uses the actual number of days in a year, providing a more precise daily interest calculation compared to the 360-day banking year.

Q2: Can this formula be used for compound interest?
A: No, this formula calculates simple daily interest. For compound interest, a different formula accounting for compounding periods is needed.

Q3: What's the difference between decimal and percentage rates?
A: Decimal rates are percentage rates divided by 100 (e.g., 5% = 0.05 decimal). This calculator requires the decimal format.

Q4: How accurate is daily interest calculation?
A: Daily interest calculation provides precise results for short-term calculations and is commonly used in financial institutions for daily accruals.

Q5: Can this calculator handle different currencies?
A: Yes, the calculator works with any currency as long as you maintain consistency in the principal amount and resulting interest.