How does the calculator apply the 365/360 method?
It divides the nominal annual rate by 360 to get the daily rate, then multiplies by an average month of 365 ÷ 12 days. That gives a monthly rate slightly higher than the annual rate divided by 12. The amortization formula then turns that monthly rate into a fixed payment over the term you enter.
Total interest is the payment times the number of payments minus the loan amount. The effective annual rate compounds the monthly rate over 12 months, which captures both the day-count premium and the effect of monthly payments.
For the comparison, the calculator reruns the same loan with a 30/360 monthly rate, which is simply the annual rate divided by 12. The difference in total interest is the extra cost of the 365/360 convention.
Monthly rate = (R ÷ 360) × (365 ÷ 12) M = P × i × (1 + i)^n ÷ ((1 + i)^n − 1) Effective annual rate = (1 + i)^12 − 1
- R
- nominal annual rate
- i
- monthly rate under 365/360
- P
- loan amount
- n
- number of monthly payments
- M
- monthly payment
Example: a $500,000 business loan at 7.25% for 10 years
Scenario: A small manufacturer borrows $500,000 for equipment at an illustrative 7.25% nominal rate, fully amortized over 10 years, with interest accrued on a 365/360 basis.
- Daily rate7.25% ÷ 360 = 0.020139% per day
- Monthly rate0.020139% × (365 ÷ 12) = 0.61256%
- Monthly payment$500,000 over 120 months at 0.61256% = $5,896.20
- Total interest$5,896.20 × 120 − $500,000 = $207,544.00
- Same loan on 30/360Rate 7.25% ÷ 12 = 0.60417%, payment $5,870.05, total interest $204,406.00
- Extra interest vs. 30/360$207,544.00 − $204,406.00 = $3,138.00
The 365/360 method adds $26.15 a month and $3,138.00 over the loan, lifting the effective annual rate to 7.603% from 7.496%.
Actual loans accrue by the real number of days in each month, so individual payments vary a little from this average-month model.
When should you check a loan's day-count method?
Reviewing a commercial or business loan
Actual/360 accrual is common in commercial lending. Running it here shows the extra cost compared with the rate on the term sheet.
Comparing offers with the same quoted rate
If one lender uses 365/360 and another 365/365, the quoted rates are not equal. Compare effective annual rates instead.
Negotiating loan terms
Knowing the dollar cost of the convention gives you a concrete figure to raise with the lender, or to offset against a lower rate.
Reconciling interest charges
If interest on a statement looks higher than rate ÷ 12, a 365/360 basis is a likely reason.
What do borrowers overlook with 365/360 loans?
Assuming the quoted rate is the cost
The nominal rate understates the yearly interest under 365/360. The effective rate is the honest comparison number.
Dismissing the premium as rounding
A tenth of a percentage point sounds small, but on a large balance over many years it adds up to thousands.
Comparing it with the APR on a consumer loan
Consumer disclosures and commercial term sheets are built differently. Line up effective rates on the same basis.
Forgetting about balloon structures
Many commercial loans amortize over a longer period than their term and end with a balloon. This calculator assumes full amortization.
How do the three common conventions compare on the same loan?
Under the average-month model used here, 30/360 and 365/365 produce the same monthly rate, because both equal the annual rate divided by 12 on average. Only 365/360 changes the math, by scaling the rate up by 365/360.
The table runs the $500,000 example through all three. The 365/360 row is the only one that departs from the quoted rate.
| Convention | Monthly rate | Monthly payment | Total interest | Effective annual rate |
|---|---|---|---|---|
| 30/360 (rate ÷ 12) | 0.60417% | $5,870.05 | $204,406.00 | 7.496% |
| 365/365 (actual/365) | 0.60417% | $5,870.05 | $204,406.00 | 7.496% |
| 365/360 (actual/360) | 0.61256% | $5,896.20 | $207,544.00 | 7.603% |
How big is the day-count premium at different rates?
The premium scales with the rate: it is always the nominal rate times 5/360. At low rates it is a few hundredths of a point; at higher rates it grows to more than a tenth of a point of simple yearly interest.
Basis points are hundredths of a percentage point, so 10 basis points equals 0.10%.
| Nominal rate | Rate actually charged per year | Premium |
|---|---|---|
| 5% | 5.069% | 6.9 basis points |
| 6.5% | 6.590% | 9.0 basis points |
| 8% | 8.111% | 11.1 basis points |
| 10% | 10.139% | 13.9 basis points |
Terms used on this page
- Day-Count Convention
- A day-count convention is the rule a lender uses to turn an annual interest rate into daily interest. Common methods are 365/365, which divides the rate by 365 and charges actual days, and 365/360, which divides by 360 but still charges actual days. The 365/360 method produces slightly more interest for the same stated rate.
- Interest Rate
- An interest rate is the price of money, stated as a percentage of the balance per year. Borrowers pay it to lenders, and savers earn it from banks. The rate alone does not include fees or compounding, so it can understate the true yearly cost of a loan or overstate a simple comparison of savings accounts.
- APR (Annual Percentage Rate)
- APR is the yearly cost of borrowing expressed as a single percentage that includes the interest rate plus certain required fees, such as origination charges. Because lenders must calculate it the same way under federal Truth in Lending rules, APR lets you compare loan offers on an even footing.
- Amortization
- Amortization is the process of paying off a loan with equal, regular payments that each cover the interest due for the period plus a slice of principal. Early payments are mostly interest; later ones are mostly principal. By the final payment the balance reaches exactly zero, which is how most car, personal and student loans work.
365/360 Loan Calculator: common questions
Why do lenders use the 365/360 method?
It is a long-standing convention in commercial banking and money markets, partly because a 360-day year once made calculations easier. It also raises the yield on the loan slightly without changing the quoted rate. Many commercial loan documents specify it, so it is worth checking the interest clause before signing.
How much more does a 365/360 loan cost?
The interest rate effectively charged is 365/360 of the quoted rate, about 1.39% higher in relative terms. On the illustrative $500,000, 10-year loan at 7.25%, that adds $3,138.00 of interest over the life of the loan compared with a 30/360 schedule, or $26.15 a month. The larger and longer the loan, the bigger the dollar gap.
Is the 365/360 method legal for consumer loans?
Day-count rules depend on the loan type and state law, and some consumer loans are restricted in how they can describe or compute interest. 365/360 is most common in commercial lending. For any loan, federal disclosure rules require the APR on consumer credit, which reflects the true yearly cost. If you are unsure how a loan computes interest, ask the lender to explain the method in writing.
How do I calculate daily interest on a 365/360 loan?
Divide the annual rate by 360 and multiply by the balance. At 7.25% on $500,000, the daily interest is $500,000 × 0.0725 ÷ 360 = $100.69. Multiply by the number of days in the billing period for that period's interest, so a 31-day month costs more than a 30-day one.
What is the effective annual rate on a 365/360 loan?
It is the yearly cost once the day-count premium and monthly compounding are both included. At 7.25% nominal with monthly payments, this calculator shows 7.603%, compared with 7.496% for the same rate charged as an even twelfth each month. Use it to compare loans that accrue interest differently. The difference between those two figures is the day-count premium alone.
Is 365/360 the same as actual/360?
Yes. Both names describe charging interest for the actual number of days elapsed at a daily rate based on a 360-day year. You may also see it written as Actual/360 or A/360 in loan agreements and term sheets. Whichever label is used, the effect is the same: a year's interest is 365/360 of the stated rate, or 366/360 in a leap year. The calculator above shows what that adds to your loan.
Can I negotiate a different day-count method?
Sometimes. On commercial loans, the day-count clause is a term like any other, and a borrower with a strong application may be able to ask for 365/365 or a slightly lower rate to offset the premium. Bring the dollar figure from the calculator to the conversation. Even if the lender will not change the method, knowing its cost helps you compare offers fairly.
Does 365/360 affect a balloon loan differently?
The premium works the same way: each period accrues slightly more interest. On a balloon loan, that also means a little less principal is repaid each month, so the balloon due at maturity ends up slightly larger. This calculator models full amortization, so it does not show a balloon amount.
How does a leap year affect 365/360 interest?
Under a strict actual/360 method, a leap year has 366 days of interest, so the year costs 366/360 of the nominal rate. The difference is one extra day of interest. This calculator uses an average month of 365/12 days and does not model leap years. Over a multi-year loan, that adds a few extra days of interest in total.
Sources
- Regulation Z (Truth in Lending), 12 CFR Part 1026 — Consumer Financial Protection Bureau. Accessed October 17, 2026.
- Selected Interest Rates – H.15 release — Federal Reserve Board. Accessed October 17, 2026.
- Consumer Resource Center — Federal Deposit Insurance Corporation. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations, last checked October 17, 2026. See our methodology.