To understand how the accrued interest works let us take an example here. Now since we all know that accrued interest is the interest rate accumulated by the lender from the last payment to the next payment.
Let’s say a borrower borrowed $150,000 from a lender at an annual interest rate of 5%. The interest amount of $7,500 (150000 x 5%) is charged annually.
Now this interest amount needs to be calculated daily and then monthly. The monthly interest amount comes up to $625 (7500 / 12 ) and the daily interest comes to $20.83.
Let’s say that the borrower took the loan in April and the next payment is due in May. The lender will accumulate $20.83 every day till the payment is due in May.
The formula to calculate the accrued interest considering the above example is (5% x (10/365)) X 150000).