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Daily Interest Formula:
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Daily per diem interest refers to the interest amount calculated on a daily basis for loans, savings accounts, or investments. It represents the interest that accrues each day based on the current balance and annual interest rate.
The calculator uses the daily interest formula:
Where:
Explanation: This formula calculates how much interest accrues each day by dividing the annual rate by 365 days and applying it to the current balance.
Details: Understanding daily interest helps borrowers know how much interest accumulates between payments and helps savers understand how their money grows daily. Many financial products now use daily compounding.
Tips: Enter your current balance in dollars and the annual interest rate as a percentage. The calculator will show how much interest accrues each day.
Q1: Why divide by 365 instead of 360?
A: While some institutions use 360 days for simplicity, 365 days provides a more accurate daily rate calculation for most personal finance applications.
Q2: Does this calculator account for compounding?
A: This calculates simple daily interest. For compound interest, the calculation would be more complex as it would need to account for interest earning interest.
Q3: How does daily interest affect loan payments?
A: On loans, daily interest accrual means that making payments earlier in the billing cycle can reduce the total interest paid over time.
Q4: Are there different methods for calculating daily interest?
A: Yes, some financial institutions may use actual/365, actual/360, or 30/360 methods. This calculator uses the actual/365 method which is common for many consumer products.
Q5: Can I use this for credit card interest calculations?
A: While the basic formula is similar, credit cards often have more complex calculations involving average daily balance and multiple rates for different transaction types.