As a bank employee, I can tell you how to calculate overdraft interest rate. The average daily balance method is used to determine the interest rate on an overdraft (OD) loan. It is a crucial component of personal financial management. Scroll down to better understand the method to find the overdraft interest rate.
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How is Interest Calculated on Overdraft?
Let me explain about overdraft first. When a bank account's balance falls below zero and the account holder keeps making transactions, this is known as an overdraft. The bank may then apply an interest rate to the negative amount and charge an overdraft fee.
Usually, the following formula is used to determine overdraft interest:
Overdraft interest = (Overdraft balance × Annual percentage rate) / Number of days in the yearHere, the overdraft balance means the total amount that the account holder has taken out of their account.
The overdraft balance is multiplied by the APR and divided by 365 or 366 (in case of leap year) to determine the daily interest rate. The account will subsequently be charged interest every day that it is overdrawn.
The amount of the overdraft balance and the length of time it is overdrawn will determine the total overdraft interest. I hope this helps you understand how to calculate overdraft interest rate.
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How to Calculate Overdraft Interest?
Bhavya88
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9 months
2024-07-25T15:26:21+00:00 2024-07-25T16:26:35+00:00Comment
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