Simple Interest on Short-Term Loans: 360 vs. 365 Day Count
October 21, 2026
Simple interest = principal × rate × time, where time is a fraction of a year. For short loans, time is days divided by the number of days in the year. A $5,000 loan at 8% for 90 days costs $5,000 × 0.08 × 90 ÷ 365 = $98.63 on an actual/365 basis, or $5,000 × 0.08 × 90 ÷ 360 = $100.00 on a 360-day basis.
Skip the math and get your answer instantly:
Open the Simple Interest Calculator →Day-Count Conventions
Lenders use different conventions. Actual/365 divides by 365 (or 366 in a leap year). Actual/360 divides by 360 while counting actual days elapsed, which gives slightly higher interest, making a stated 8% rate behave like 8.11%. 30/360 assumes every month has 30 days.
Commercial loans and many money-market instruments use actual/360, while consumer loans often use actual/365. Check your loan agreement.
| Convention | Interest on $5,000 at 8% for 90 days | Effective annual rate |
|---|---|---|
| Actual/365 | $98.63 | 8.00% |
| Actual/360 | $100.00 | 8.11% |
Payoff Amount
The payoff is principal plus interest accrued so far. If you repay the loan after 45 days under actual/365, the interest is $5,000 × 0.08 × 45 ÷ 365 = $49.32, so you owe $5,049.32. There is no compounding unless the agreement says interest is added to principal periodically.
Paying early reduces interest in proportion, but some loans have a minimum interest charge or a prepayment fee, so ask for a payoff quote.
Simple vs. Compound
With simple interest, interest is calculated on the original principal only. For short terms the difference from compound interest is small. For multi-year loans or savings, compounding creates a much larger gap. Interest-only loans, short-term personal notes, and some auto loans use simple interest.
A useful check is to divide interest by principal and by the fraction of the year to recover the annual rate.
Frequently Asked Questions
What is the formula for simple interest?
Interest = principal × annual rate × time in years.
Why do some lenders use a 360-day year?
It is a traditional banking convention and results in slightly higher interest than a 365-day year.
How do I calculate interest for a number of days?
Multiply principal by the annual rate and by days divided by 365 (or 360, depending on the loan).
Is simple interest cheaper than compound?
For the same rate, yes, because interest is not charged on earlier interest.