365/360 Loan Interest Calculator

Understanding the 365/360 Interest Calculation Method

The 365/360 interest calculation method, also known as "Actual/360" or "Ordinary Simple Interest," is commonly used in the United States for certain types of loans, particularly commercial loans and some mortgages.

Here's how it works:

• Interest Rate Base: The calculation assumes a 360-day year when determining the daily interest rate (Annual Rate / 360).
• Accrual Period: Interest accrues based on the actual number of days in the calculation period (e.g., 30 days in April, 31 days in May).

Essentially, you calculate a daily interest rate based on a simplified 360-day year, but then apply that daily rate for the actual number of days interest is owed, which can be up to 365 (or 366 in a leap year).

Why is the 365/360 Method Used?

Historically, the 360-day year simplified manual interest calculations by dividing neatly into 12 months of 30 days each. While less necessary with computers, its use persists due to convention and existing loan agreements.

Key Implication: Because the annual interest rate is divided by a smaller number (360 instead of 365), the resulting daily interest rate is slightly higher compared to an Actual/Actual (365/365) calculation. This means that, over a full 365-day year, the borrower pays slightly more interest using the 365/360 method than the stated annual rate might imply, resulting in a slightly higher effective annual rate.

How to Use This Calculator

1. Enter the total Loan Amount (principal).
2. Input the Annual Interest Rate as a percentage (e.g., enter 6 for 6%).
3. Specify the Number of Days for which you want to calculate the interest (e.g., 30 for a month, 90 for a quarter).
4. Click the "Calculate Interest" button.
5. The results will show the calculated Daily Interest Amount and the Total Interest accrued over the specified number of days using the 365/360 method.

Disclaimer: This calculator provides an estimate based on the 365/360 method. Actual interest calculations may vary based on specific loan terms, compounding frequency, fees, and lender practices. Always consult your official loan documents for precise figures.