Actual/360 vs Actual/365: What the Day Count Does to Interest

The two formulas

A day-count convention has two parts: how days are counted and what they're divided by. "Actual" means calendar days, so a 31-day month accrues 31 days and February accrues 28 or 29. The number after the slash is the year used to turn an annual rate into a daily one.

That fixed ratio is the whole story. The day count never changes the note rate; it changes how much of that rate a calendar year collects.

Per diem interest

Per diem is one day of interest at the current balance: balance × rate ÷ 360 or ÷ 365. It's the daily figure that payoff statements and partial-month interest charges are built from.

A rounding caution: a rounded per diem multiplied by many days drifts. $59.18 × 63 days is $3,728.34, but the exact Actual/365 interest for those 63 days on $180,000 is $3,728.22. The app keeps full precision and rounds once, at the end of the schedule.

The effective annual rate

Because Actual/360 counts 365 real days but divides by 360, a full year collects more than the stated rate. Computed exactly:

LegalClarity makes the same point in a May 16, 2026 article on minimum interest clauses: a 12% note on Actual/360 works out to about 12.17%. PropertyMetrics (Patrick Graham, January 3, 2023) compares the conventions on a $2.5 million loan at 4%: the first month, a 31-day January, accrues $8,493.15 on Actual/365 and $8,611.11 on Actual/360, and it finds that Actual/360 results in the most interest of the three methods it compares.

Worked example: a draw-based loan, both ways

Day count matters most on a funded-balance loan, where interest is computed day by day on a balance that grows with each draw. Here is a $280,000 loan at 12%: $180,000 funds at closing on Nov 2, 2026, the $100,000 holdback goes out in three draws, and the loan matures on Nov 2, 2027, 365 days later.

Actual/360 costs the borrower $414.08 more on this loan. The gap grows with dollar-days, not with the loan amount alone: a schedule that draws early, or a longer hold, widens it, and money that sits undrawn narrows it. Run your own schedule in the Dutch interest calculator, which takes dated draws and either day count.

Where the day count doesn't apply in the app

For full-balance interest, the app and the calculators use monthly interest = loan × rate ÷ 12, and scheduled interest = loan × rate × term ÷ 12. Neither uses the day-count setting. On this loan, both settings give $2,800.00 a month and $33,600.00 over 12 months. Minimum interest is also counted in months, so it doesn't change either.

Some notes accrue full-balance interest daily instead. That's a different calculation the calculators don't run: at Actual/360, $280,000 at 12% accrues $2,893.33 in a 31-day month and $34,066.67 over 365 days, against $2,800.00 and $33,600.00 on the rate ÷ 12 method. If your note works that way, use the per diem formula above for the full balance. The hard money interest calculator shows monthly interest and per diem for your own loan.

Leap years

The engine counts real calendar days, February 29 included, and divides by a fixed 365 or 360. Nothing switches to 366. To see the effect, move the same deal one year later so it closes on Nov 2, 2027 and matures on Nov 2, 2028. The term is now 366 days, and the period from Jan 4, 2028 to Mar 1, 2028 has 57 days instead of 56.

The extra day adds one day of interest on the $215,000 outstanding on February 29: $70.68 on Actual/365 and $71.67 on Actual/360. A loan spanning a leap day on Actual/365 therefore collects slightly more than its stated rate for that year.

30/360 exists, but isn't modeled

30/360 treats every month as 30 days and every year as 360, so each full month accrues exactly rate ÷ 12. In the PropertyMetrics example, that first 31-day month accrues $8,333.33, less than either actual-day method. The app has no 30/360 setting for funded-balance interest. Its full-balance monthly figure, loan × rate ÷ 12, happens to match one 30/360 month, but draw periods and partial months are always counted in actual days.

Checking a note, quote or payoff

• Find the divisor. The note's interest clause should say whether interest is computed on a 360-day or 365-day year and whether actual days elapsed are counted.
• Compare quotes on one basis. A 12% Actual/360 quote collects 12.1667% over a 365-day year, so it costs more than a 12.125% Actual/365 quote even though its stated rate is lower.
• Check the per diem on payoff statements. Divide it by the balance and multiply by 360 and by 365. Whichever returns the note rate tells you the convention used.
• Ask which balance accrues. Day count only scales interest; whether interest runs on the full loan or the funded balance moves the total far more. On this deal, full-balance interest is $33,600.00 against $30,228.33 funded-balance interest on Actual/360.