Accrued Interest
What Is Accrued Interest?
Accrued interest is interest that has accumulated on a loan or investment but has not yet been paid.
It builds over time between payment dates.
Even if you haven’t received a bill yet, interest may already be accruing.
Accrued interest applies to:
- Credit cards
- Mortgages
- Student loans
- Bonds
Why Accrued Interest Matters
Interest accrues daily on many types of debt. On investments like bonds, accrued interest may be owed to a seller when purchasing between payment dates.
For example:
- $10,000 balance
- 6% annual interest
- Daily accrual based on outstanding balance
If you carry a balance, accrued interest increases the total amount owed before your next payment.
How Accrued Interest Is Calculated
- Annual interest rate ÷ 365 days
- Multiplied by outstanding principal
- Multiplied by number of days since last payment
The longer the time period, the more interest accrues.
Accrued Interest vs Interest Payment
- Accrued interest refers to interest that has accumulated but not yet been paid.
- Interest payments are the scheduled payments made to investors.
FAQs About Accrued Interest
Does accrued interest affect credit scores?
Indirectly — through higher balances.
Is accrued interest the same as compound interest?
Not exactly. Accrual refers to buildup; compounding refers to interest added to principal.
Can accrued interest be avoided?
Yes, by paying balances before interest begins accruing.
Related Terms
