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Daily Interest Formula:
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The daily interest rate is the interest charged or earned on a daily basis, calculated by dividing the annual percentage rate (APR) by 365 days. This conversion is essential for understanding how interest compounds daily on loans, credit cards, and investments.
The calculator uses the simple formula:
Where:
Explanation: This formula converts the annual interest rate into a daily rate by dividing by 365, assuming daily compounding throughout the year.
Details: Calculating daily interest is crucial for understanding the true cost of borrowing, comparing financial products, and calculating compound interest on savings and investments. It provides a more accurate picture of interest accrual than annual rates alone.
Tips: Enter the Annual Percentage Rate (APR) as a percentage value. For example, enter "15" for 15% APR. The calculator will automatically compute the daily interest rate.
Q1: Why Divide By 365 Instead Of 360?
A: Dividing by 365 uses the actual number of days in a year, while some financial institutions use 360 days for simplicity. Using 365 provides a more accurate daily rate calculation.
Q2: How Is Daily Interest Used In Compound Interest?
A: Daily interest rates are used to calculate compound interest, where interest is added to the principal daily, leading to exponential growth over time.
Q3: What's The Difference Between APR And APY?
A: APR is the annual rate without compounding, while APY (Annual Percentage Yield) includes the effects of compounding. Daily compounding can significantly increase APY compared to APR.
Q4: Can I Use This For Credit Card Interest?
A: Yes, this calculation is commonly used for credit cards, where interest compounds daily based on the daily periodic rate derived from the APR.
Q5: How Accurate Is This Calculation For Leap Years?
A: For most practical purposes, using 365 days is sufficient. However, in leap years, some calculations may use 366 days for slightly more precision.