365/360 Loan calculator

The Day-Count Convention Hiding Inside Your Commercial Loan

Most consumer mortgages use a 30/360 convention, every month treated as exactly 30 days. Commercial real estate loans and many business lines of credit don’t play by that rule. They use 365/360, and the difference quietly costs borrowers real money over the life of a loan if nobody ever checks the math.

365/360 means your annual interest rate gets divided by 360 to find a daily rate, but interest still accrues on all 365 (or 366) actual days of the year. That mismatch, dividing by the smaller number while counting the larger number of days, makes the effective rate higher than the stated rate. It’s not a scam, it’s just an old banking convention that predates modern computing, when 360 was easier to divide cleanly into months.

Working Through the Actual Numbers

Take a $250,000 commercial loan at a stated 6.75% annual rate. Daily rate: 6.75% ÷ 360 = 0.01875% per day. Over a 30-day billing period: $250,000 × 0.0001875 × 30 = $1,406.25 in interest.

Now compare that to straight 30/360, where you’d divide by 360 and multiply by exactly 30 days assumed, landing at the same $1,406.25 for a 30-day month specifically. The gap shows up in months with 31 days, or worse, across a full leap year. Run the same loan across all 365 days of a year at 365/360 versus 30/360 assuming twelve 30-day months, and the 365/360 method extracts about 5 extra days worth of interest annually, roughly $1,406.25 × (5/30) ≈ $234 more per year on this loan size alone.

Why the Effective Annual Rate Differs From the Stated Rate

The effective annual rate compounds that daily rate across all 365 days, consistently coming out higher than the nominal stated rate. On the example above, a stated 6.75% works out to an effective annual rate closer to 6.99%, a gap of about a quarter point that never appears anywhere on the loan’s term sheet unless you calculate it yourself.

Commercial lenders aren’t hiding this, it’s standard in the industry and disclosed in loan documents, but the practical effect on your actual cost is rarely explained in plain terms during the closing process.

When This Method Shows Up

• Commercial real estate loans and CMBS (commercial mortgage-backed securities)
• Business lines of credit and revolving credit facilities
• Some construction loans and bridge financing arrangements
• SBA loans, depending on the specific lender and loan program

Residential mortgages in the US almost universally stick to 30/360, so if you’re comparing a home loan against a commercial property loan, don’t assume the interest math works the same way just because both quote an “annual rate.” They genuinely don’t calculate identically.

If you’re modeling out a broader loan comparison, our other financial calculators can help you compare total cost across different structures side by side.

One Practical Catch Worth Knowing

February gets the short end of this method every single year. A 28-day February under 365/360 still divides by 360, meaning that month’s interest charge is calculated almost identically to a 30-day month despite having two fewer days, which slightly favors the borrower for that one billing cycle, the only month where the convention briefly works in your favor.

FAQs

What does 365/360 mean on a commercial loan?

It means the annual interest rate is divided by 360 to get a daily rate, but interest still accrues over the actual 365 (or 366) days in the year. This makes the effective rate slightly higher than the stated nominal rate.

How is 365/360 different from a standard 30/360 mortgage calculation?

30/360 assumes every month has exactly 30 days and the year has 360 days total, keeping monthly interest consistent regardless of actual calendar days. 365/360 uses real calendar days for accrual while still dividing the rate by 360, creating a small but real cost difference.

Does the 365/360 method always cost the borrower more?

In most months, yes, since dividing by 360 while counting actual days (which average more than 30 per month across the year) increases the effective rate. February is a minor exception due to having fewer days.

What is the effective interest rate under 365/360 versus the stated rate?

The effective annual rate is typically 0.2 to 0.3 percentage points higher than the stated rate, depending on the exact rate level. Higher stated rates see a proportionally larger gap.

Which types of loans typically use 365/360 amortization?

Commercial real estate loans, business lines of credit, and some construction or bridge loans commonly use this method. Standard residential mortgages almost always use 30/360 instead.

Can I negotiate my lender to use 30/360 instead of 365/360?

It depends on the lender and loan type, some commercial lenders are open to negotiating day-count convention, particularly for larger loans with more negotiating leverage. It’s worth asking before signing, since it directly affects your total cost.

How much extra does 365/360 actually cost over a loan’s full term?

It varies by principal, rate, and term length, but for a typical commercial loan it can add several hundred to a few thousand dollars over a multi-year term compared to a 30/360 equivalent rate.

Check the actual day-count language in your loan agreement directly. It’s usually buried in the definitions section, but it’s the single clause that determines which version of this math applies to every payment you make.