Interest rates are quoted per year, but money rarely sits for exactly 365 days. Pro rata interest is the interest for a partial period: a loan held for 45 days, a deposit kept for 2 months, a mortgage paid off on day 20 of the month. The calculation takes the annual rate and scales it down to the actual days or months. This guide covers the daily and monthly formulas, the 360-day year, and payoff interest.
Skip the spreadsheet: the free pro rata calculator on this site runs the daily-rate math for you.
The daily formula
- Interest = principal × annual rate × (days ÷ 365)
- Daily interest = principal × annual rate ÷ 365
Use the daily formula for anything that accrues by the day: bridge loans, margin accounts, mortgage payoffs, and tax interest.
Worked example: 45 days on a loan
- Principal: $10,000, annual rate: 6%, period: 45 days
- Interest = $10,000 × 0.06 × (45 ÷ 365) = $73.97
- Check: a full year is $600, and 45/365 of that is $73.97
The check matters. If your answer is not a clean fraction of the annual interest, the period or the rate is wrong.
The monthly formula
- Interest = principal × annual rate × (months ÷ 12)
- Deposit: $5,000, annual rate: 4.8%, held 2 months
- Interest = $5,000 × 0.048 × (2 ÷ 12) = $40
Savings accounts that credit interest each month use this method. The daily and monthly formulas agree only when months have equal length, so use the method the account actually applies.
The 360-day year
Many commercial loans and promissory notes use a 360-day year instead of 365. Same loan, same rate, same 45 days:
- Interest = $10,000 × 0.06 × (45 ÷ 360) = $75.00
- Difference vs the 365-day method: $1.03
A 360-day year charges slightly more interest for the same period, because each day counts for a larger fraction of the year. The note or loan agreement states which day count applies. US mortgages generally use 365; business notes often use 360.
Interest on an early mortgage payoff
A payoff statement includes interest accrued since your last payment, prorated by day.
- Balance: $182,500, annual rate: 5%, last payment 20 days ago
- Daily interest: $182,500 × 0.05 ÷ 365 = $25.00
- Payoff interest: 20 × $25.00 = $500.00
The lender adds this to the principal balance on the payoff quote. It is why a payoff amount is always higher than the balance shown in your app.
The three traps
- Day count. Check whether the contract says 360, 365, or actual days. The difference compounds on large balances.
- Simple vs compound. The formulas above are simple interest. Compounding accounts apply the rate to principal plus accumulated interest, which pushes the total higher after the first period.
- APR vs stated rate. APR bundles in fees and is usually higher than the interest rate. Use the interest rate for accrual, not the APR.
Dividends on a partial holding period use the same fraction-of-the-year logic, and our guide on pro rata dividends shows the share-based version.
Work out the interest: enter the principal, the annual rate, and the number of days. The calculator returns the prorated interest, free and no signup.
Related guides
How pro rata dividend payments work How to calculate pro rata: formula and worked examples What does "pro rata" mean?Frequently asked questions
How do I calculate interest for part of a month?
Multiply the principal by the annual rate and by the fraction of the year: days divided by 365. For 10 days on $10,000 at 6%, that is $16.44.
Why do some lenders use a 360-day year?
It is a banking convention for commercial loans and notes. A 360-day year makes each day worth more, so interest for the same period comes out slightly higher than the 365-day calculation.
Does pro rata interest compound?
The formulas in this guide are simple interest. If the account compounds, the rate is applied to principal plus accumulated interest each period, and the total comes out higher.
How is interest handled when I pay off a loan early?
The payoff statement adds interest accrued since the last payment, prorated by day, to the principal balance. That is why payoffs exceed the balance shown in the app.
Which rate do I use, APR or the stated rate?
Use the stated interest rate for accrual. APR bundles in fees and is typically higher. Plugging APR into the accrual formula overstates the interest.