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Daily Interest Formula:
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Daily interest calculation determines the amount of interest accrued on a loan or investment each day. It's calculated based on the outstanding principal balance and 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 or investment by dividing the annual rate by 365 days and multiplying by the outstanding balance.
Details: Understanding daily interest helps borrowers track accruing debt, allows investors to calculate daily returns, and is essential for accurate financial planning and loan amortization schedules.
Tips: Enter the outstanding loan balance in dollars and the annual interest rate as a percentage. The calculator will compute the daily interest amount.
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 rate that accounts for the actual number of days in a year.
Q2: Does this calculation work for compound interest?
A: This formula calculates simple daily interest. For compound interest, the calculation would need to account for interest being added to the principal balance each period.
Q3: How does daily interest affect my total loan cost?
A: Daily interest accrual means interest compounds daily, which can significantly increase the total cost of a loan over time, especially with higher rates or larger balances.
Q4: Can I use this for investments as well as loans?
A: Yes, the same formula works for calculating daily interest earned on investments, though investment interest is typically compounded.
Q5: What if my interest compounds more frequently than daily?
A: This calculator provides the daily interest amount. For more frequent compounding, you would need to divide the annual rate by the number of compounding periods.