Glossary

Day-count convention

Day-count convention is the rule a lender uses to count days in an interest period — commonly actual/365 or actual/360 — and it quietly changes the amount charged.

2 min read

365 or 360Days in the year

Actual/360Costs slightly more

Definition

A day-count convention sets how many days are assumed to be in a year and a period when interest is calculated. Actual/365 divides the annual rate by 365; actual/360 divides by 360, which makes each day slightly more expensive even at the same headline rate — a convention more common on commercial and sterling-overnight-linked facilities.

In plain terms

It sounds like accounting trivia, but on a large balance the 360-day basis can add a small premium versus the 365-day basis for the identical quoted rate.

Why it matters for your company

On sizeable facilities, check the day-count basis in the terms — actual/360 is not the same cost as actual/365. See daily interest accrual for how the daily figure is built.

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