Question 1

How do you calculate daily interest on a loan?

Accepted Answer

To calculate daily interest on a loan, divide your annual interest rate by 365 (days in a year) to get your daily rate. Then multiply this daily rate by your outstanding loan balance. For example, on a $10,000 loan at 12% annual interest: Daily rate = 12% ÷ 365 = 0.0329%. Daily interest = $10,000 × 0.000329 = $3.29 per day.

Question 2

What is the difference between simple and compound daily interest?

Accepted Answer

Simple daily interest is calculated only on the principal amount and remains constant each day. Compound daily interest is calculated on both the principal and accumulated interest, causing the daily interest amount to increase over time. Credit cards typically use compound daily interest, while many loans use simple interest.

Question 3

Why do credit cards charge daily interest?

Accepted Answer

Credit cards charge daily interest (also called Daily Periodic Rate) to maximize their revenue and provide flexibility for payments at any time during the billing cycle. The daily rate is your APR divided by 365, and interest compounds daily on your average daily balance if you carry a balance past the grace period.

Question 4

How much does daily interest cost on a mortgage?

Accepted Answer

Daily interest on a mortgage depends on your loan balance and rate. For a $300,000 mortgage at 7% APR: Daily interest = $300,000 × (7% ÷ 365) = $57.53 per day. This is why making extra payments or paying early in the month can save significant interest over time.

Daily Interest Calculator | How to Calculate Daily Interest on a Loan

Understanding Daily Interest Calculations

Understanding Daily Interest Calculations