365/360 Loan Calculator

The 365/360 method (also written "actual/360") is a day-count convention used widely in US commercial lending. It works like this: the lender takes your annual rate and divides it by 360 to get a daily rate — then charges that daily rate for all 365 days of the year.

The mismatch is the whole point. Dividing by a smaller number produces a larger daily rate, but the year does not get shorter to compensate. The result is that you pay 365/360 = 1.3889% more interest than the quoted rate implies, every year, automatically.

The effective rate is always exactly 1.3889% higher in relative terms, whatever the quoted rate. A 5% loan is really 5.0694%. A 10% loan is really 10.1389%.

This convention shows up almost exclusively in commercial and business contexts, not consumer lending:

• Commercial real estate mortgages — near-universal on bank-originated CRE debt
• Business term loans and lines of credit from banks
• Equipment financing and some SBA loans
• Construction loans, where interest is drawn and charged daily

Consumer mortgages, auto loans and personal loans in the US almost always use 365/365, so if you are borrowing personally you are unlikely to meet it.

Is it negotiable? Occasionally, and it is worth raising. On a large commercial loan the cumulative difference reaches real money — on a $2 million ten-year facility it can exceed $25,000. Some lenders will switch to 30/360 or actual/365 if asked, particularly if you are otherwise a strong credit. Many will not, because the convention is embedded in their loan systems. Either way, the important thing is to price the loan on its effective rate when comparing offers: a 6.90% 365/360 loan (effectively 6.9958%) is more expensive than a 6.95% 365/365 loan, even though the headline number looks lower.

Related: the Per Diem Interest Calculator shows the daily accrual figure under either basis, which is what a payoff quote is built from.