1. What is Daily Interest Only Loan?

A daily interest only loan calculates interest each day based on the current balance. The borrower typically pays only the interest accrued each day, with the principal remaining unchanged unless additional payments are made.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( Balance \) — Current loan balance in dollars
• \( APR \) — Annual Percentage Rate (as percentage)
• \( 365 \) — Number of days in a year

Explanation: The formula converts the annual rate to a daily rate by dividing by 365 days, then applies it to the current balance.

3. Importance of Daily Interest Calculation

Details: Understanding daily interest helps borrowers estimate their daily cost of borrowing, plan payments, and compare loan products. It's particularly important for lines of credit or loans with variable balances.

4. Using the Calculator

Tips: Enter the current loan balance in dollars and the APR as a percentage (e.g., 5.25 for 5.25%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is the daily interest the same every day?
A: Only if the balance remains constant. If you make payments or additional draws, the daily interest will change accordingly.

Q2: Does this calculator account for leap years?
A: No, it uses 365 days for simplicity. The difference in a leap year is negligible for most purposes.

Q3: How does this differ from compound interest?
A: This calculates simple daily interest. Compound interest would add the interest to the principal periodically.

Q4: Can I use this for credit cards?
A: Yes, credit cards typically use daily interest calculations, though they may compound the interest.

Q5: How accurate is this calculation?
A: It provides a good estimate, but actual interest may vary slightly based on the lender's specific methods.