Per Diem Interest Calculator

Per Diem Interest Formula:

\[ \text{Per Diem Interest} = \text{Balance} \times \left( \frac{\text{APR}}{365} \right) \]

Per Diem Interest:

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1. What is Per Diem Interest?

Per Diem Interest refers to the daily interest charged on a loan balance. It's calculated by dividing the annual interest rate by 365 days and multiplying by the outstanding balance.

2. How Does the Calculator Work?

The calculator uses the Per Diem Interest formula:

\[ \text{Per Diem Interest} = \text{Balance} \times \left( \frac{\text{APR}}{365} \right) \]

Where:

$ \text{Balance} $ — Outstanding loan amount or principal balance ($)
$ \text{APR} $ — Annual Percentage Rate (%)

Explanation: The formula calculates the daily interest amount by converting the annual rate to a daily rate and applying it to the current balance.

3. Importance of Per Diem Interest Calculation

Details: Calculating per diem interest is essential for understanding daily interest costs, making informed financial decisions, and planning loan repayments. It's particularly important for mortgages and other large loans where daily interest accrual can be significant.

4. Using the Calculator

Tips: Enter the current balance in dollars and the annual percentage rate (APR) as a percentage. Both values must be valid (balance > 0, APR ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 instead of 360?
A: While some financial institutions use 360 days for simplicity, dividing by 365 provides a more accurate daily rate calculation based on the actual number of days in a year.

Q2: Does this calculation account for compounding?
A: This is a simple interest calculation. For compound interest, the calculation would be more complex and would depend on the compounding frequency.

Q3: How is per diem interest used in mortgage lending?
A: Lenders use per diem interest to calculate interest due at closing and for daily interest accrual between payment dates.

Q4: Can per diem interest change during the loan term?
A: Yes, per diem interest changes as the balance decreases with payments or if the interest rate adjusts in variable-rate loans.

Q5: Is this calculation applicable to all types of loans?
A: While the basic principle applies to most loans, specific loan types may have different calculation methods or additional factors to consider.