- 365/360 method
- An interest-accrual method that computes a daily rate by dividing the annual rate by 360, then charges it for every actual day of the year. The borrower pays 365 days of interest at a 360-day rate, so the true cost is about 1.4% higher than the stated rate — 6.5% nominal works out to about 6.59% simple. Common in commercial loans.
- Day-count convention
- The rule a loan uses to turn an annual rate into interest for a given period — which year length is the divisor and which days are counted. Common conventions are 30/360, actual/365 (365/365) and actual/360 (365/360). The same nominal rate produces different interest under each, so the convention belongs in any loan comparison.
- Daily rate
- The interest rate charged per day. Under 365/360 it is the annual rate divided by 360; at 6.5%, about 0.018056% a day. Multiplied by the balance and the days in the period, it gives the interest due. This calculator uses an average month of 365/12 days to convert it to a monthly rate.
- Nominal interest rate
- The stated annual rate in the loan documents, before accounting for the day-count method or compounding. Under 365/360, the rate actually earned by the lender is higher than the nominal rate. Two loans quoted at the same nominal rate can cost different amounts if they accrue interest differently.
- Effective annual rate
- The true yearly cost once the day-count premium and monthly compounding are included. For a 6.5% nominal rate under 365/360, this calculator shows about 6.793%, versus about 6.697% for the same rate charged as a simple monthly 1/12. It is the fairest single number for comparing loans that accrue differently.
- 30/360 method
- A convention that treats every month as 30 days and the year as 360, so monthly interest is simply the annual rate divided by 12 — the standard for most U.S. residential mortgages. This calculator uses it as the baseline for “extra interest vs 30/360”. On $100,000 at 6.5% over 10 years, the 365/360 premium is about $552.
- Amortization
- Paying off a loan through equal scheduled payments that each cover that period’s interest plus part of the principal, so the balance reaches zero by the last payment. Under 365/360 each payment carries slightly more interest, so the level payment is higher than under 30/360 for the same nominal rate and term.
- Balloon payment
- A large lump sum due at maturity when a loan’s payments are based on a longer amortization than its actual term, a common structure in commercial lending where 365/360 is also typical. This calculator assumes full amortization over the term you enter, so it does not show a balloon balance.
