1. What is Daily Interest Rate?

The daily interest rate represents the interest charged or earned on a daily basis, calculated by dividing the annual interest rate by 365 days. This is particularly useful for mortgages, loans, and savings accounts where interest compounds daily.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• \( Annual\ Rate \) — Annual interest rate in percentage
• \( 365 \) — Number of days in a year

Explanation: This calculation converts an annual percentage rate to its daily equivalent, which is essential for daily compounding interest calculations.

3. Importance of Daily Rate Calculation

Details: Understanding daily interest rates is crucial for accurate mortgage calculations, loan amortization, and comparing financial products with different compounding frequencies.

4. Using the Calculator

Tips: Enter the annual interest rate as a percentage (e.g., 5.25 for 5.25%). The calculator will automatically compute the daily rate. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 instead of 360?
A: Most modern financial calculations use 365 days for greater accuracy, though some institutions still use 360 days for simplicity.

Q2: How is daily rate used in mortgage calculations?
A: Daily rates are used to calculate daily interest charges, which accumulate and are typically paid monthly in mortgage payments.

Q3: What's the difference between APR and daily rate?
A: APR is the annual rate, while daily rate is the APR divided by 365. Daily rate shows the actual daily cost of borrowing.

Q4: Does this account for compounding?
A: This calculates the base daily rate. For compound interest, you would use this rate in compound interest formulas.

Q5: When is daily interest rate most important?
A: For daily compounding accounts, short-term loans, and when comparing financial products with different compounding periods.