1. What is Accrued Interest?

Accrued interest is the interest that has accumulated on a loan or investment but hasn't yet been paid or received. It represents the amount of interest earned or owed for a specific period of time between payments.

2. How Does the Calculator Work?

The calculator uses the simple accrued interest formula:

Where:

• \( Principal \) — The original loan amount or investment
• \( Rate \) — Annual interest rate in decimal form (e.g., 5% = 0.05)
• \( Days \) — Number of days interest has accrued

Explanation: The formula calculates the portion of annual interest that corresponds to the number of days specified.

3. Importance of Accrued Interest Calculation

Details: Calculating accrued interest is essential for accurate financial reporting, loan servicing, investment tracking, and understanding the true cost of borrowing or return on investments between payment periods.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple and compound accrued interest?
A: This calculator uses simple interest. Compound interest would include interest on previously accrued interest, which requires a more complex formula.

Q2: Why use 365 days instead of 360?
A: 365 is standard for most loans, but some financial instruments use 360-day years. Check your loan agreement for specifics.

Q3: How does this apply to monthly payments?
A: For monthly payments, you would calculate the daily interest rate and multiply by the number of days in the billing period.

Q4: Does this work for investments as well as loans?
A: Yes, the same calculation applies to interest earned on investments between payment periods.

Q5: What about leap years?
A: For maximum precision in leap years, you could use 366 days, but 365 is standard practice for most calculations.