Actual/365, Actual/360, and 30/360: why the same rate produces different interest

The rate is not the whole calculation

Two lenders can write the same 12.00% note on the same $500,000 principal and bill different interest — because the rate is only half of the instruction. The other half is the day-count basis: how many days you charge for, over how many days in the year. Private-lending documents commonly use Actual/365, Actual/360, or a 30/360 convention, and the choice quietly changes daily accrual, monthly invoices, and the payoff per diem.

The three conventions side by side

Daily interest is principal × rate ÷ days-in-year. Actual/365 divides by 365 and counts real days. Actual/360 divides by 360 but still charges every actual day. 30/360 treats each month as 30 days and the year as 360.

Thirty-day and 31-day months

Actual/365 and Actual/360 both count real days, so a 31-day month bills more than a 30-day month. 30/360 bills a flat $5,000 every month regardless of length — clean for statements, but it drifts from the calendar. The practical consequence: a borrower comparing two consecutive statements on an actual-day basis will see the interest change with the length of the month, and will call you if the statement does not explain why.

The effective-rate surprise in Actual/360

Actual/360 is the one that surprises people. Charging actual days over a 360-day denominator means that across a full 365-day year you bill 365 days of interest at a daily rate built on 360. Over a 365-day year, Actual/360 produces about 1.39% more interest than Actual/365. On $500,000 at 12.00%, the difference is approximately $833.33 — a 12.00% note that behaves like a 12.167% note. Small per loan, real across a book, and a frequent source of disputes when the note says one thing and the borrower expected another.

Leap years and odd-days interest

In a leap year, an Actual/365 Fixed convention charges 366 elapsed days over a 365 denominator — one extra day of interest that year. "Odd days" at the front of a loan (the stub period between funding and the first full period) accrue on the same daily basis, which is why the first invoice often looks irregular. Neither is an error; both fall directly out of counting actual days.

Payoff per diem

At payoff, the per diem is the daily interest figure carried to the good-through date. This is the most scrutinized number on the letter because it changes the exact wire amount.

$500,000 × 12% ÷ 365 = $164.38 / day

Under Actual/360 the same loan's per diem is $166.67 — $2.29 a day more. Over a two-week payoff window that is about $32; a closing agent reconciling to the penny will catch it. For 30/360, the payoff day count depends on the implemented month-end rule and the specific date pair — do not assume a universal calendar per diem.

30/360 is a family, not a single rule

"30/360" is shorthand for a family of conventions (30/360 US, 30E/360, and others) that differ in how they treat the 31st of a month and the last day of February. For a U.S. private-lending audience the common variant is 30/360 US, but the month-end rule matters at period boundaries and at payoff. Use the exact convention your documents specify, and confirm which variant your servicing system implements.

How to read the note and board it

The convention lives in the loan documents, usually near the interest clause. Language like "computed on the basis of a 360-day year for the actual number of days elapsed" is Actual/360, not 30/360. When the wording is ambiguous, that is a question for the lender and counsel — not a default to assume. Once you know it, store the basis on the loan when you board it, not in a formula you retype each month, so every downstream figure reads from one stored value.

Where LoanConsole fits

LoanConsole stores the selected day-count basis with the loan and applies it consistently across accruals, invoices, statements, reserve calculations, and payoff. It does not decide which convention your documents require; that choice belongs to the loan documents and the professionals reviewing them.