1. What is Daily Interest Calculation?

Daily interest calculation determines the amount of interest accrued each day on an interest-only loan. This is particularly useful for short-term loans or when tracking daily interest expenses.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( P \) — Principal amount (loan balance)
• \( R \) — Annual interest rate (in decimal form)
• \( I \) — Daily interest amount

Explanation: The formula divides the annual interest by 365 days to calculate the daily interest amount for interest-only loans.

3. Importance of Daily Interest Calculation

Details: Calculating daily interest helps borrowers understand their daily cost of borrowing, plan for interest payments, and compare different loan options more accurately.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 instead of 360?
A: While some financial institutions use 360 days for simplicity, dividing by 365 provides a more accurate daily interest calculation based on the actual number of days in a year.

Q2: Does this calculation work for compound interest?
A: No, this formula calculates simple daily interest for interest-only loans. Compound interest requires a different calculation method.

Q3: How does this differ from monthly interest calculation?
A: Monthly interest would be calculated as (P × R)/12, while daily interest divides the annual rate by 365 days.

Q4: Can I use this for mortgage calculations?
A: This formula is specifically for interest-only loans. Traditional mortgages with principal reduction require different calculations.

Q5: How accurate is this calculation for leap years?
A: For maximum precision in leap years, you could divide by 366 instead of 365, but most financial institutions use 365 days consistently throughout the year.