1. What is Accrued Interest?

Accrued interest is the interest that has accumulated on a loan since the last payment date but has not yet been paid. It represents the cost of borrowing money over time.

2. How Does the Calculator Work?

The calculator uses the accrued interest formula:

Where:

• \( Outstanding \) — The principal amount of the loan ($)
• \( Rate \) — The annual interest rate (in decimal form)
• \( Days \) — The number of days since last payment

Explanation: The formula calculates how much interest accumulates daily on a loan based on the outstanding principal and annual rate.

3. Importance of Accrued Interest Calculation

Details: Accurate accrued interest calculation is crucial for loan accounting, payment processing, and financial reporting. It helps borrowers understand how much interest they owe between payments.

4. Using the Calculator

Tips: Enter the outstanding loan amount in dollars, the annual interest rate in decimal form (e.g., 0.05 for 5%), and the number of days since last payment. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 in the formula?
A: This converts the annual rate to a daily rate based on a 365-day year (actual day count convention).

Q2: What's the difference between accrued interest and regular interest?
A: Accrued interest is interest that has accumulated but not yet been paid, while regular interest is what's paid according to the loan schedule.

Q3: How often should accrued interest be calculated?
A: Typically calculated daily for most loans, though some may use monthly accrual for simplicity.

Q4: Does this work for compound interest?
A: This calculator uses simple interest. For compound interest, a different formula would be needed.

Q5: What if the loan uses a 360-day year?
A: You would need to adjust the formula by dividing by 360 instead of 365.