How to Compute a Daily Interest Rate
Daily interest accrues on overdue balances on some loans, such as federal student aid. If a payment is overdue less than a month, then calculating the daily interest rate will reveal how much simple interest is being accumulated each day the payment is late. The real impact of a daily interest rate is hard to foresee without calculating out the real day-to-day cost of the interest. Understanding daily interest can help you plan wise investments and minimize risk.
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Instructions
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Calculating Simple Daily Interest
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Gather information about the investment or loan being calculated. This information should include the amount of the loan, the number of days between payments and the interest rate.
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2
Write down the following formula for a simple daily interest rate:
(Number of days since last payment) x (principal balance) x (interest rate factor) = (interest amount).
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3
Fill in the 'number of days since last payment' variable by writing in the number of days that will pass before your payment is made. If you are calculating the daily interest rate for 10 days, for example, this variable would be 10. If you are trying to figure out how much extra interest will accrue on an overdue loan, use the number of days the loan is overdue. For example, if your payment is a week overdue, then this variable will be 7. In the case of a week, the formula will look like this:
7 x (principal balance) x (interest rate factor) = (interest amount).
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4
Enter in the 'principal balance' variable. The principal balance is the total amount of money you are borrowing or putting in savings. If the loan is for $10,000, for example, write in $10,000 for this variable. Now the simple interest formula will read:
7 (days) x $10,000 (principal balance) x (interest rate factor) = (interest amount).
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5
Calculate the 'interest rate factor'. The 'interest rate factor' must be converted from the given 'interest rate,' because interest rates are generally given in annual terms. To determine the interest rate factor, convert the annual interest rate to a decimal by moving the decimal two spots to the left and dropping the percent sign. For example, if the interest rate is 8.99 percent the decimal will be .0899. Then divide this number by the number of days in a year, 365.25 so that it is daily. For example: .0899/365.25 = .00024613. This number will be the interest rate factor.
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Enter the 'interest rate factor' into the simple daily interest formula. Using the previous examples, the formula will look like this:
7 (days) x $10,000 (principal balance) x .00024613 (interest rate factor) = (interest amount)
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7
Multiply to determine the daily interest amount. The solution to our example says that interest for seven days on a $10,000 loan at 8.99 percent interest will equal $17.23.
7 (days) x $10,000 (principal balance) x .00024613 (interest rate factor) = $17.23
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