What is Per Diem Interest?
Per diem interest is the daily interest charge on a loan. For auto loans, lenders often calculate interest on a per diem (per day) basis between payment dates. This calculator helps you determine your daily interest charge based on your loan balance and interest rate.
Formula
The per diem interest calculation uses these steps:
$$\text{Per Diem Rate} = \frac{\text{Yearly Interest Rate}}{365}$$
$$\text{Per Diem Payment} = \frac{\text{Per Diem Rate}}{100} \times \text{Loan Balance}$$
Example Calculation
Given:
- Yearly Interest Rate = 7%
- Loan Balance = $10,000
Calculate:
Per Diem Rate = 7 ÷ 365 = 0.01918%
Per Diem Payment = (0.01918 ÷ 100) × $10,000 = 0.0001918 × 10,000 = $1.918 ≈ $1.92
This means you accrue approximately $1.92 in interest per day on a $10,000 loan at 7% annual interest.
When to Use This Calculator
- Early Payoff Planning: Calculate how much interest you'll save by paying off your loan early
- Payment Timing: Understand how payment dates affect total interest charges
- Refinancing Decisions: Compare daily interest costs between different loan offers
- Budgeting: Estimate interest charges for irregular payment periods
Understanding Per Diem Interest
Auto loan interest typically accrues daily based on your outstanding balance. The number of days between payments affects your total interest charge:
- Monthly Payments: If you pay every 30 days, you'll pay approximately 30 × per diem rate
- Early Payments: Paying a few days early reduces the interest portion of your payment
- Late Payments: Extra days mean additional interest charges
This is why making extra payments or paying early can significantly reduce the total interest paid over the life of your loan.