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Daily Interest Formula:
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Daily interest calculation determines the amount of interest accrued on a loan principal each day. It's based on the annual interest rate divided by 365 days.
The calculator uses the daily interest formula:
Where:
Explanation: The formula calculates how much interest accrues each day on a loan by dividing the annual rate by 365 days and multiplying by the principal.
Details: Understanding daily interest helps borrowers track interest accumulation, compare loan options, and make informed financial decisions about debt management.
Tips: Enter principal amount in currency units and annual interest rate as a decimal (e.g., 0.05 for 5%). Both values must be valid (principal > 0, rate ≥ 0).
Q1: Why divide by 365 instead of 360?
A: 365 represents the actual number of days in a year. Some financial institutions use 360 days for simplicity, but 365 provides a more accurate daily calculation.
Q2: How does daily interest affect total loan cost?
A: Daily compounding can significantly increase total interest paid over time compared to simple annual interest, especially for long-term loans.
Q3: Can I use this for credit card interest?
A: Yes, this formula works for any type of debt that accrues interest daily, including credit cards, though some cards may use slightly different methods.
Q4: What's the difference between APR and interest rate?
A: APR includes both interest rate and additional fees, providing a more comprehensive cost measure. This calculator uses the basic interest rate.
Q5: How accurate is daily interest calculation?
A: Very accurate for most purposes, though actual bank calculations may involve more complex methods including compounding and specific day count conventions.