How to calculate daily interest on a loan

What is daily interest?

Daily interest is the amount of interest that accumulates on a loan balance over a single calendar day. Most lenders calculate interest on a daily basis even when repayments are made monthly, which means the balance you carry each day directly determines your interest cost.

Understanding your daily interest figure makes the cost of debt concrete. A $10,000 personal loan at 12% per annum accrues $3.29 every day — over $1,200 per year. A $400,000 home loan at 6.5% accrues $71.23 per day — more than $26,000 per year. Expressed as a daily figure, the stakes of carrying debt become much clearer than an annual percentage alone.

The formula for daily interest

The calculation is straightforward:

Daily interest = Outstanding balance × (Annual interest rate ÷ 100) ÷ 365

Breaking this down:

1. Convert the annual rate from a percentage to a decimal: 12% becomes 0.12
2. Divide by 365 to get the daily rate: 0.12 ÷ 365 = 0.000328767
3. Multiply by the outstanding balance: $10,000 × 0.000328767 = $3.29

The same approach applies to any loan type — personal loans, vehicle loans, home loans, or credit cards.

Extending to weekly, monthly, and annual figures

Once you have the daily figure, extending to other periods is simple:

• Weekly interest = daily interest × 7
• Monthly interest = balance × (annual rate ÷ 100) ÷ 12
• Annual interest = balance × (annual rate ÷ 100)

Note that monthly interest uses ÷ 12, not daily × 30.4. This matches the standard lender convention, which treats a month as exactly one-twelfth of a year regardless of how many days the month contains.

Worked example: $10,000 personal loan at 12%

For a $10,000 outstanding balance at 12% per annum:

Period	Calculation	Result
Daily	$10,000 × 0.12 ÷ 365	$3.29
Weekly	$3.29 × 7	$23.01
Monthly	$10,000 × 0.12 ÷ 12	$100.00
Annual	$10,000 × 0.12	$1,200.00

These figures represent a snapshot at the current $10,000 balance. As you make repayments and the balance falls, each figure decreases proportionally. After paying the balance down to $8,000, for instance, the daily interest would be $2.63 instead of $3.29.

How monthly fees change the picture

Many loans include monthly account-keeping fees on top of interest. These are a flat charge each month, regardless of the balance. Adding them into the total cost calculation gives a more accurate picture of what you’re actually paying:

Monthly total cost = monthly interest + monthly fees

Annual total cost = annual interest + (monthly fees × 12)

For example, a $10,000 loan at 12% with a $15 monthly fee:

• Monthly interest: $100.00
• Monthly fees: $15.00
• Monthly total cost: $115.00
• Annual total cost: $1,380.00

The monthly fee adds $180 per year to the cost — a 15% premium over the interest alone. On a smaller balance, fees can dominate the total cost, which is why the comparison rate (which incorporates fees) is a better basis for comparing loan products than the interest rate alone.

Why daily interest decreases over time

On an amortising loan, each repayment reduces the outstanding balance. A lower balance means less interest accrues the next day. This is why the interest portion of repayments shrinks over the loan term while the principal portion grows.

The daily interest calculator shows a snapshot at the current balance. To see how your interest cost falls over the full loan term, use the personal loan calculator or mortgage repayment calculator, which produce a full amortisation schedule showing interest and principal components for every repayment.

How making extra repayments affects daily interest

Because daily interest is proportional to the outstanding balance, any reduction in the balance produces an immediate reduction in daily interest. If you make a $1,000 extra repayment on a loan at 12%, your daily interest falls by $1,000 × 0.12 ÷ 365 = $0.33 — every day from that point forward.

That $0.33 per day adds up to $120 per year. Over the remaining term of a 5-year loan with 3 years remaining, that single extra repayment saves approximately $360 in interest, assuming the balance remains otherwise unchanged.

Comparing loan products using daily interest

The daily interest figure is a useful tool for comparing loan products side by side:

1. Enter the same outstanding balance and term for each loan
2. Use each lender’s advertised rate
3. Compare the daily, monthly, and annual interest figures

For a complete comparison that includes fees, add each lender’s monthly fee to the monthly interest before comparing. Alternatively, use the loan comparison calculator, which calculates the total cost (interest plus fees) side by side for up to four loans.

Credit cards and daily compounding

Credit card interest works somewhat differently from standard loans. Most credit card issuers compound interest daily: any interest charged on one day is added to the balance, and that interest then accrues its own interest the next day.

This calculator uses simple interest, so for credit cards with high balances carried for multiple months, the monthly and annual totals may slightly understate the true cost due to the compounding effect. For a rough estimate or a single-month snapshot, the figures remain useful.

For precise credit card cost modelling, use the credit card interest calculator, which accounts for daily compounding and minimum repayment dynamics.