Per-Diem Interest

Per-diem interest is the amount of interest charged on a loan on a daily basis. When someone borrows money, the lender charges a certain percentage of interest. Most people repay the loan with a fixed amount of money each month, with part going toward repaying the principal amount borrowed and the rest going for interest. However, that amount of interest does not become due in a lump sum; rather, it accrues, or builds up, being added a little at a time daily. Knowing the per-diem interest amount is important. For example, on mortgage loans, borrowers pay interest after it accrues, except at the loan closing. At closing, however, borrowers pay all the interest due through the end of that month, and then they skip a month and make their first loan payment the next month, paying interest that accrued through the skipped month. This makes payments at the stated amount possible without pro-rating payments.