1. What is Daily Interest Calculation?

Daily interest calculation determines the amount of interest accrued on a loan principal each day. This is particularly useful for understanding daily borrowing costs and for loans where interest compounds daily.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( I_{daily} \) — Daily interest amount (currency)
• \( P \) — Principal amount (currency)
• \( r \) — Annual interest rate (decimal)

Explanation: The formula divides the annual interest rate by 365 days to get the daily rate, then multiplies by the principal amount to calculate daily interest.

3. Importance of Daily Interest Calculation

Details: Understanding daily interest helps borrowers comprehend the true cost of borrowing, plan repayments, and compare different loan options effectively.

4. Using the Calculator

Tips: Enter the principal amount in your local currency and the annual interest rate as a decimal (e.g., 0.05 for 5%). All values must be valid (principal > 0, rate between 0-1).

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 accurate daily interest calculation compared to the 360-day banking year method.

Q2: How does daily interest affect total loan cost?
A: When interest compounds daily, even small daily amounts can significantly increase the total repayment amount over the loan term.

Q3: Can I use this for credit card interest?
A: Yes, this formula can help estimate daily interest charges on credit card balances, though actual calculations may vary by issuer.

Q4: What's the difference between simple and compound daily interest?
A: This calculator shows simple daily interest. Compound interest would reinvest the daily interest, leading to exponential growth.

Q5: How accurate is this calculation for leap years?
A: For maximum precision in leap years, you could divide by 366, but the difference is minimal for most practical purposes.