1. What is Daily Interest Calculation?

The daily interest calculation determines how much interest accrues each day on a line of credit or loan. This is important for understanding the true cost of borrowing and for tracking interest between payments.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( balance \) — Current outstanding balance on the line of credit
• \( rate \) — Annual interest rate (as a decimal)
• 365 — Number of days in a year (some calculations use 360)

Explanation: The formula calculates the proportional daily amount of the annual interest based on the current balance.

3. Importance of Daily Interest Calculation

Details: Understanding daily interest helps borrowers make informed decisions about payments, compare credit options, and project total interest costs over time.

4. Using the Calculator

Tips: Enter the current balance and annual interest rate (as a decimal - e.g., 0.05 for 5%). The calculator will show the daily interest amount.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365?
A: This spreads the annual interest evenly across all days of the year. Some lenders use 360 days for simpler calculations.

Q2: Does this account for compound interest?
A: No, this calculates simple daily interest. For compound interest, the calculation would be more complex.

Q3: How does payment frequency affect interest?
A: More frequent payments reduce the average daily balance, which reduces total interest paid.

Q4: What's the difference between APR and interest rate?
A: APR includes fees and other costs, while the interest rate is just the cost of borrowing the principal.

Q5: How can I reduce my daily interest?
A: You can reduce daily interest by paying down your balance or negotiating a lower interest rate.