Commercial Loan 365/360 Calculator

What the 365/360 method does

The 365/360 day-count convention is used in commercial lending in some markets — particularly the United States and Canada — to compute the daily interest charge on a loan. The annual rate quoted to the borrower is divided by 360 to produce the daily periodic rate, but interest is accrued on the actual 365 days of the year. The result is that the rate the borrower actually pays is slightly higher than the rate quoted, even though the quoted rate is what appears on the loan documents. This calculator returns the monthly payment under the 365/360 convention, the equivalent payment under a standard 365/365 amortisation, the extra cost over the full term, and the true effective annual rate the borrower is paying once the convention is taken into account.

How the monthly amortisation rate is derived

The daily periodic rate under 365/360 is the annual rate divided by 360. To produce the monthly factor used in the amortisation formula, that daily rate is multiplied by the average number of days in a month — 365 divided by 12. The two operations combined give a monthly factor equal to the annual rate multiplied by 365 and divided by (360 × 12). Algebraically that is the same as taking the annual rate, scaling it by 365/360, then dividing the scaled rate by 12. The calculator computes the monthly payment from this factor using the standard amortisation formula.

Two different views of the rate

The result panel separates two figures. The 'Scaled Rate Used in Amortisation' is the annual rate multiplied by 365/360 — this is the figure that, divided by 12, produces the monthly factor. The 'True Effective Annual Rate (Compound)' is what the borrower is actually paying once the daily compounding under 365/360 is annualised: (1 + annual rate / 360)^365 − 1. The two numbers measure different things. The scaled figure is a pricing convenience; the true effective rate is the one that compares directly against the EAR or APR on any other credit product.

How to read the comparison to standard 365/365

The standard 365/365 (or 30/360 monthly) method computes the monthly factor by dividing the annual rate directly by 12. The calculator runs this in parallel and shows the resulting monthly payment alongside the 365/360 figure, with the difference accumulated across the full term as the 'Extra Cost Over Term'. On a multi-million principal over a long term, the extra cost can be several thousand units of currency despite the rate quoted on the loan documents being identical.

Where the convention is used

The 365/360 method is most often applied to commercial real estate loans, business term loans, and commercial revolving credit in markets that have inherited the convention. It is rare on consumer mortgages and personal loans in those same markets, and uncommon altogether in markets that follow Actual/365 or Actual/Actual day-count standards. Loan documents specify the day-count method explicitly; if the documentation says 365/360, this calculator applies. If it says Actual/365 or 30/360, the standard amortisation calculator gives the right answer.

Where the simulation simplifies

The calculation assumes a fixed quoted rate, equal monthly payments, and no fees. Origination fees, prepayment penalties, balloon payments, and rate resets on variable-rate commercial loans are outside the scope. The calculator is built for the day-count comparison specifically; full term-sheet modelling needs additional inputs that vary by lender.