What Is Per Diem Interest?
Per diem interest is the amount of interest a loan accrues each day. Lenders use it to calculate the interest portion of mortgage closing costs, prorated charges, payoff quotes, and short settlement periods. This calculator works for any loan currency and any jurisdiction, since it relies only on the principal balance and the annual percentage rate (APR).
How to Use It
Enter the outstanding loan principal (or balance) and the annual interest rate as a percentage. Optionally enter a number of days to see how much interest accrues over that window. The calculator returns the daily interest charge and the total over the chosen period.
The Formula Explained
The daily interest is the principal multiplied by the annual rate, divided across the days of the year:
$$\text{Per Diem} = \frac{\text{Principal} \times \dfrac{\text{APR \%}}{100}}{365}$$
The APR is converted from a percentage to a decimal (for example, 6% becomes 0.06). Many lenders use a 365-day year for per diem interest, which is the convention used here. Some use a 360-day year — adjust your expectations accordingly if your lender does.
Worked Example
Suppose you owe $10,000 at a 6% APR. The per diem interest is:
$$10{,}000 \times \left(\frac{0.06}{365}\right) = 10{,}000 \times 0.00016438 = \$1.64 \text{ per day}$$
Over 30 days, that accrues to about $49.32 in interest.
FAQ
Does this use a 360 or 365 day year? It uses 365 days, the most common convention for per diem interest.
Is per diem interest the same as simple daily interest? Yes — it is simple interest computed per day on the current balance, with no compounding.
Why do lenders charge per diem interest? To cover the days between loan disbursement and the start of a regular payment cycle, or to produce an exact payoff figure on any given date.
