Glossary term
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.
Updated October 17, 2026 · Editorial Team
How Day-Count Convention works in practice
Under 365/365, the daily rate is the annual rate ÷ 365, and a full year of interest equals exactly the stated rate. Under 365/360, the daily rate is the annual rate ÷ 360, but interest is charged for all 365 days, so a year's interest equals the stated rate × 365 ÷ 360. Some loans also use a 30/360 basis, treating every month as 30 days.
On a $100,000 balance at 6.00%, the 365/365 daily interest is $100,000 × 0.06 ÷ 365 = $16.44, or $6,000.00 for the year. Under 365/360 the daily interest is $16.67, and a full year comes to $6,083.33, making the effective rate about 6.083%.
The difference is small on consumer-size loans, but it is real and can matter on large balances. Your loan documents state the method. When comparing offers with the same stated rate, a 365/365 loan costs a bit less than a 365/360 one.
Day-Count Convention: quick questions
Why would a lender use 365/360?
It is a long-standing convention in commercial and some consumer lending, and it produces slightly more interest at the same stated rate.
How much more does 365/360 cost?
About 1.39% more interest per year than 365/365, because 365 ÷ 360 is 1.0139.
Where do I find my loan's day-count method?
It is in your promissory note or loan agreement, often in the section describing how interest accrues.
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.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations. See our methodology.
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