One of the questions I get about mortgage interest rates is what the term "accrual" means. More specifically, many want to know the difference between monthly accrual and daily accrual. Also, in addition to be helpful in terms of mortgage interest rate, knowing what accrual means can also help you understand other types of loans.
Accrual is the period of time in which interest on your loan is charged. While you end up with an annual percentage rate, it is actually charged daily or monthly.
A monthly accrual means that the annual rate is divided by 12. At the end of every month, that number is multiplied by the balance, and that becomes the monthly interest charge.
A daily accrual follows the same process, but every day. The annual percentage rate is divided by 365 and then figured with the daily loan balance. Many credit card interest charges are figured using daily accrual.
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