Daily interest

Daily interest is the amount of interest that accumulates on a loan balance during a single calendar day. It is calculated by dividing the annual interest rate by 365 and multiplying by the outstanding balance.

The formula

Daily interest = Outstanding balance × (Annual rate ÷ 365)

For example, a $10,000 balance at a 12% annual rate accrues:

$10,000 × (12% ÷ 365) = $10,000 × 0.000328767 ≈ $3.29 per day

How lenders use daily interest

Most lenders calculate interest on a daily basis even if repayments are made monthly. Each day, the lender multiplies the outstanding balance by the daily rate to determine how much interest has accrued. At the end of the billing period (typically a month), these daily charges are totalled and applied to the account.

This means that any payment made during the month — including an extra repayment — immediately stops interest accruing on the amount paid. The benefit is felt from day one, not just at the next statement date.

Why the daily figure matters

Seeing interest expressed as a daily cost makes the ongoing expense of a loan concrete. A personal loan charging $3.29 per day costs more than $1,200 per year in interest at that balance — money that leaves the borrower’s wealth without reducing any asset.

Daily interest also makes it easy to calculate the cost of delaying a repayment: each additional day of outstanding balance at that rate costs exactly the daily figure. For large balances, even a few days’ delay can be material.

Daily interest and offset accounts

For home loans with an offset account, the lender calculates daily interest on the loan balance minus the offset balance. If the loan balance is $400,000 and the offset holds $50,000, daily interest is charged only on the net $350,000. This is functionally equivalent to reducing the loan balance by $50,000 without losing access to the funds.