1. What is Per Diem Calculation?

Per diem calculation determines the daily interest cost on a loan. It represents the amount of interest that accrues each day based on the loan amount and annual interest rate.

2. How Does the Calculator Work?

The calculator uses the per diem formula:

Where:

• Loan Amount — Principal amount of the loan in dollars
• Rate — Annual interest rate (expressed as a decimal)

Explanation: This formula calculates the daily interest by dividing the annual interest by 365 days.

3. Importance of Per Diem Calculation

Details: Per diem calculations are essential for understanding daily loan costs, budgeting for interest payments, and calculating partial period interest accruals.

4. Using the Calculator

Tips: Enter the loan amount in dollars and the annual interest rate as a decimal (e.g., 0.05 for 5%). Both values must be positive numbers.

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 based on the actual calendar year.

Q2: How is this different from APR?
A: APR (Annual Percentage Rate) includes fees and other costs, while per diem calculates only the daily interest portion of the loan cost.

Q3: Can I use this for mortgage calculations?
A: Yes, this formula works for any type of loan where interest accrues daily, including mortgages, personal loans, and auto loans.

Q4: What if my loan compounds interest?
A: This calculation provides the simple daily interest. For compound interest, the calculation would be more complex as it would need to account for accumulated interest.

Q5: How accurate is this calculation for leap years?
A: For maximum precision in leap years, you could divide by 366 instead of 365, but the difference is minimal for most practical purposes.