This online calculator computes the daily interest rate, the total interest accrued on an amount of borrowed money.
Enter
- Principal or Initial Loan amount in any currency
- Annual Percentage Rate (APR) or Interest Rate
- Loan Term (in years, months and days) over which interest is to be calculated
The calculator will provide the following interest numbers: daily rate (%), daily amount and total amount over the time interval (in any currency).
Formula
Daily Periodic Rate = APR/365
Daily Interest = Current Balance × Daily Periodic Rate
Total Interest = Principal × (1 + Daily Interest Rate)N – Principal
where N is the number of days
Background
Loans are an essential financial tool, enabling everything from home purchases to business investments. However, the cost of borrowing can add up quickly, especially when interest is compounded daily. Understanding how daily interest works and how to calculate it can help you manage your loan more effectively and minimize your overall interest expenses.
What is Daily Interest?
Daily interest is the interest calculated on a loan balance each day, rather than monthly or annually. This method of interest calculation is often used for short-term loans, payday loans, and some personal and auto loans. The interest is typically compounded daily, meaning it’s calculated on the principal plus any accumulated interest from previous days.
How Does Daily Interest Work?
To understand how daily interest is calculated, let’s break down the process:
- Daily Periodic Rate:
- The annual interest rate (APR) is divided by 365 to find the daily periodic rate. This rate represents the fraction of the annual interest rate that applies each day. Daily Periodic Rate = APR/365
- Daily Interest Calculation:
- Each day, interest is calculated by multiplying the current loan balance by the daily periodic rate. This daily interest is then added to the balance, increasing the amount on which the next day’s interest is calculated. Daily Interest = Current Balance × Daily Periodic Rate
- Compounding:
- Because interest is added to the balance daily, the loan grows at an accelerating rate. This compounding effect can significantly increase the total amount owed over time.
Example Calculation
Let’s say you have a loan of $5,000 with an annual interest rate of 10%. You want to understand how much interest will accrue over 30 days if the interest is compounded daily.
Use the calculator to see the daily interest rate is 0.0274%. The daily interest on $1,000 is $0.27. The total interest accrued over one month is $8.25 and over one year it is $105.17.