1. What is Daily Interest Accrual?

Daily interest accrual calculates how much interest accumulates on a loan each day based on the principal amount, interest rate, and time period. This method is commonly used for loans, credit lines, and other financial instruments.

2. How Does the Calculator Work?

The calculator uses the daily interest accrual formula:

Where:

• \( P \) — Principal amount ($)
• \( r \) — Annual interest rate (in decimal form)
• \( days \) — Number of days interest accrues

Explanation: The formula calculates the portion of annual interest that would accrue over a specific number of days.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for understanding loan costs, comparing financial products, and planning repayments. Daily accrual provides precise measurement of interest obligations.

4. Using the Calculator

Tips: Enter principal in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and number of days. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365?
A: This calculates the daily interest rate from the annual rate, assuming a 365-day year (actual/actual day count convention).

Q2: How does this differ from compound interest?
A: This calculates simple interest. Compound interest would include interest on previously accrued interest.

Q3: What if my loan uses 360-day year?
A: Some loans use 360 days. In that case, replace 365 with 360 in the calculation.

Q4: How accurate is this for variable rates?
A: For variable rates, you would need to calculate each period separately when the rate changes.

Q5: Can I use this for investments?
A: Yes, this can calculate interest earned on simple interest investments or savings accounts.