Understanding Interest Calculations

A day count convention, sometimes referred to as Interest Calculation, is used to determine how interest accrues during the life of the loan.

Day Count Conventions

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. 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, as it almost always produces higher income for the lender than the other two popular methods.
  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, 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.
  3. 30/360 assumes there are 30 days in a month and 360 days in a year; this is usually used for residential mortgage loans.

There are other methods such as 30/365, but these are rarely, if ever, used.

 

Viewing or Selecting an Interest Calculation in an Opportunity

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

interest options popup on the opportunity screen

To change from the default selection set by your administrators, select the dropdown and choose from any additional options made available by your administrator.