Quick comparisonDaily simple interest typically uses Principal × Annual Rate ÷ day-count basis × days. Monthly periodic interest commonly uses Principal × Annual Rate ÷ 12 for a single month, while amortized loans calculate interest inside a scheduled payment formula.
Daily interest formula
Daily interest = Principal × Annual rate ÷ 365Replace 365 with the contract's required day-count basis, such as 360 or 366.
Because daily interest is based on the number of elapsed interest days, an early or late payment can change the amount of interest that accrues.
Monthly interest formula
Monthly periodic interest = Principal × Annual rate ÷ 12This simple monthly formula assumes a nominal annual rate split into 12 equal monthly periods. Many amortized loans instead use a fixed payment formula and recalculate the interest portion of each scheduled payment from the outstanding balance.
Example: $10,000 at 6%
| Method | Calculation | Result |
|---|---|---|
| Daily, 30 days, Actual/365 | $10,000 × 0.06 ÷ 365 × 30 | $49.32 |
| Monthly periodic | $10,000 × 0.06 ÷ 12 | $50.00 |
The numbers are close but not identical because the daily method uses the actual number of days and a 365-day denominator.
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When the distinction matters
- Payoff statements and per-diem interest.
- Loans with irregular or late payment dates.
- Private loans that accrue simple interest by exact date.
- Comparisons between nominal monthly rate conventions and Actual/365 or Actual/360 accrual.