Enter the principal, annual interest rate, and the partial period into the calculator to determine the prorated interest.

Prorated Interest Calculator

Prorated Interest Formula

The following equation is used to calculate the Prorated Interest.

PI = P * (R / 365) * D
  • Where PI is the prorated interest ($)
  • P is the principal ($)
  • R is the annual interest rate (decimal)
  • D is the number of days in the partial period

To calculate prorated interest, multiply the principal by the daily interest rate (annual rate divided by 365), then multiply that result by the number of days in the partial period.

What is a Prorated Interest?

Definition:

Prorated interest refers to the portion of interest owed on a loan or investment for a fraction of the total annual period. It is commonly used when an account is opened or closed mid-cycle, or when balancing partial months or days within a billing or investment timeframe.

How to Calculate Prorated Interest?

Example Problem:

The following example outlines the steps and information needed to calculate the Prorated Interest.

First, determine the principal. In this example, the principal is $5,000.

Next, determine the annual interest rate. In this example, the annual interest rate is 5% (0.05 in decimal form).

Then, determine the partial period in days. Suppose the partial period is 15 days.

Finally, calculate the prorated interest using the formula above:

PI = P * (R / 365) * D

PI = 5000 * (0.05 / 365) * 15

PI = $10.27 in interest (approximately)

FAQ

Does this formula account for compounding?

This simple prorated interest formula assumes simple interest and does not include compounding. If compounding applies, you may need a different formula or calculator that takes into account the compounding frequency.

Can I use months instead of days in the calculation?

Yes. Instead of (R/365)*D, you could use (R/12)*M to prorate interest by the number of months (M) in the partial period, assuming a 12-month year.

What if the partial period crosses multiple billing cycles?

If the partial period spans multiple billing cycles, you may need to split your calculation or use an average daily balance method. The same basic concept applies, but each portion of the timeframe might have different balance amounts or interest rates.