How compounding frequency changes what your

2 min read

DailyMost expensive

AnnualLeast expensive

Same rate ≠ same costFrequency matters

Amount borrowed (£)

Arrangement & other fees (£)

Annual interest rate (%)

Term (months)

Estimates an annualised cost including fees so you can compare offers like-for-like. Illustrative, not a statutory APR.

Why frequency changes the price

Compounding frequency sets how often accrued interest is added to the balance and starts earning interest of its own. At the same nominal rate, daily compounding produces a higher effective annual rate than monthly, which beats annual.

The numbers on a £50,000 balance at 12%

Held for a year at 12% nominal: annual compounding costs £6,000 (12.00% EAR); monthly costs about £6,341 (12.68% EAR); daily costs about £6,375 (12.75% EAR). The daily-vs-annual gap of ~£375 is pure compounding, with no change in the headline rate.

Which facilities compound how often

Revolving facilities and overdrafts usually accrue daily; term loans often charge monthly; some wholesale facilities annually. The day-count convention (365 vs 360) adds a further wrinkle.

See it for your balance

Use the calculator to model the cost of holding a balance over a year, then ask each lender how often their facility compounds before you compare.

Where Credicorp fits

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

See nominal vs effective and daily interest accrual.

Frequently asked questions

Does compounding frequency matter on a normal term loan?

A little. Most of the cost is set by the rate and term, but monthly vs annual compounding still nudges the total. On revolving daily-accrual facilities it matters more.

How do I compare facilities that compound differently?

Convert each to its effective annual rate, or compare total amount payable over the same period. Never compare two nominal rates with different compounding head to head.

Is daily compounding a bad thing?

Not inherently — it also means paying down sooner in the month saves interest immediately. It just makes the same headline rate slightly dearer if you carry a balance.