Daily Reducing Balance Calculator

Formula

To calculate the daily reducing balance:

\[ DRB = P \times (1 - r)^n \]

Where:

$DRB$ is the daily reducing balance
$P$ is the principal amount
$r$ is the daily interest rate
$n$ is the number of days

What is a Daily Reducing Balance?

A daily reducing balance is a method of calculating interest on a loan where the interest is calculated on the outstanding principal amount each day. As the borrower makes payments, the principal amount reduces, and so does the interest charged on the loan. This method is commonly used in personal loans, credit cards, and other types of short-term loans. The daily reducing balance method ensures that the borrower pays interest only on the remaining principal amount, which can result in lower overall interest payments compared to other methods.

Example Calculation 1

Let's assume the following values:

Principal Amount (P) = $1000
Daily Interest Rate (r) = 0.0005
Number of Days (n) = 30

Using the formula:

\[ DRB = 1000 \times (1 - 0.0005)^{30} \approx 985.11 \]

The Daily Reducing Balance is approximately $985.11.

Example Calculation 2

Let's assume the following values:

Principal Amount (P) = $5000
Daily Interest Rate (r) = 0.0003
Number of Days (n) = 60

Using the formula:

\[ DRB = 5000 \times (1 - 0.0003)^{60} \approx 4911.18 \]

The Daily Reducing Balance is approximately $4911.18.