1. What is Accrued Interest?

Accrued interest is the interest that has accumulated on a loan since the last payment date but has not yet been paid or received. It represents the cost of borrowing money over time.

2. How Does the Calculator Work?

The calculator uses the simple accrued interest formula:

Where:

• \( Outstanding \) — Current loan principal balance (in dollars)
• \( r \) — Annual interest rate (in decimal form)
• \( Days \) — Number of days since last payment

Explanation: The formula calculates how much interest accumulates daily based on the outstanding balance and annual rate, then multiplies by the number of days.

3. Importance of Accrued Interest Calculation

Details: Calculating accrued interest helps borrowers understand how much they owe between payments, assists in loan payoff calculations, and is essential for accurate financial reporting.

4. Using the Calculator

Tips: Enter the current loan balance in dollars, the annual interest rate as a decimal (e.g., 5% = 0.05), and the number of days since last payment. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between accrued interest and regular interest?
A: Accrued interest is the amount that has accumulated but hasn't been paid yet, while regular interest is what's paid according to the payment schedule.

Q2: Why divide by 365 days?
A: This calculates the daily interest rate based on a standard year. Some calculations use 360 days for simplicity.

Q3: Does this work for compound interest?
A: No, this is a simple interest calculation. Compound interest would require a more complex formula.

Q4: How accurate is this calculation?
A: Very accurate for simple interest loans. For amortizing loans, the principal changes with each payment, so this gives an estimate.

Q5: Can I use this for any currency?
A: Yes, as long as you're consistent with the currency for both outstanding balance and accrued interest.