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Day Count Conventions

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A day count convention, sometimes referred to as Interest Calculation, is used to determine how interest accrues during the life of the loan. There are a number of conventions and by some counts, up to 20 worldwide. However, by far the three most popular in the United States are:

  1. 30/360 assumes there are 30 days in a month and 360 days in a year; this is usually used for residential mortgage loans.
  2. Actual/365 or Actual/Actual uses the actual number of days in a month (usually 30 or 31) over a 365/366 day year; this method is used mainly for consumer loans.
  3. Actual/360 uses the actual number of days in a month (usually 30 or 31) over a 360 day year; this method is used primarily for commercial loans.

There are other methods such as actual/254 or 30/365, but these are rarely, if ever, used.
We have found that the vast majority of our clients use Actual/360 on commercial loans, as it almost always produces higher income for the lender than the other two popular methods. For consumer loans where there are a lot more regulations and sometimes state prohibitions, Actual/365 is the preferred method on most non-real estate related consumer loans.

The Interest Calculation can be selected in the Interest Options field in an opportunity.

interest options popup on the opportunity screen

If you would like to add or remove an Interest Calculation for a product, you can do so in the Administration section.

products pane in the administration section

In the Defaults section choose the Interest Calculations that you would like to allow.

 allowable interest calculations section of the product edit page

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