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How daily interest is worked out
With daily interest the lender applies the daily equivalent of your annual rate to whatever balance you owe that day, then sums those daily charges over the month. Because it responds to the actual balance day by day, drawing money later, repaying earlier, or keeping a revolving facility lightly used all cut the cost immediately — there is no waiting for a monthly reset.
This is common on revolving credit facilities and overdraft-style products where the balance moves around. See daily vs monthly interest for a side-by-side.
Why it can work in your favour
On a facility you dip in and out of, daily interest rewards discipline. Clear the balance for ten days in the month and you pay nothing for those ten days. Draw only what you need, only when you need it, and the cost tracks your actual usage rather than a headline limit. This makes daily-interest revolving facilities well suited to businesses with lumpy, seasonal cash flow.
Where to check the detail
Two facilities both quoting 'daily interest' can still differ in how they compound and when interest is debited. Ask whether interest is added daily or accrued and charged monthly, and whether there is a minimum charge. On a term loan, daily accrual mainly matters for early settlement figures — the interest is calculated to the exact day you clear it.
Model your expected usage pattern, then see the live cost on the true cost calculator. When it fits, explore a revolving facility.
Frequently asked questions
Does daily interest make a loan more expensive?
Not inherently — the annual rate is what determines the cost, and daily accrual is just the method for applying it. If anything, daily accrual can make a flexible facility cheaper to run, because you only pay interest for the days you actually owe money. On a term loan it makes little practical difference to the total.
Do I pay daily interest even at weekends?
Yes — interest accrues every calendar day, including weekends and bank holidays, on a daily-interest facility. That is worth remembering when timing a large repayment: clearing a balance on a Friday rather than the following Monday saves the weekend's interest.
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