The interest rate is an annual rate* charged monthly on the 1st of every month. Interest accrues daily based on how much you have borrowed from Passfolio. This means that every day you are borrowing money interest accrues.
The daily rate can be calculated by dividing the annual rate by 360 which is approximately 8% / 360 = 0.0222%. Therefore, everyday this rate is charged on the amount you have borrowed up until the 1st of the next month, when your account will be debited.
For example, let’s say:
- January 2nd: you borrow $1,000
- You owe Passfolio $0.222 ($1,000 x 0.0222%)
- January 3rd: you didn't borrow any more money today, but you still have the $1,000 you borrowed yesterday
- Therefore you owe Passfolio more $0.222 for keeping this money borrowed.
- $0.222 will accumulate everyday until there's a change in the amount borrowed
- January 25th: you borrow an additional $1,000. Now you have borrowed $2,000
- You owe Passfolio more $0.444 ($2,000 x 0.0222%)
- January 26th: you sell some stocks worth $1,500, which lowers the amount borrowed to $500
- You owe Passfolio an additional $0.111 ($500 x 0.0222%)
January then ends, so on February 1st your account will be debited the amount that accumulated everyday since you started borrowing money:
- From January 2nd to January 24th (23 days) you had a total of $1,000 borrowed: 23 x $0.222 = $5.111
- On January 25th (1 day) you had a total of $2,000 borrowed: 1 x $0.444 = $0.444
- From January 26th to January 31st (6 days) you had a total of $500 borrowed: 6 x $0.111 = $0.667.
At last, the amount that will be debited from your account on February 1st is: $5.111 + $0.444 + $0.667 = $6.22 (rounds up to 2 decimal places).
This illustrative example does not account for any fees, commissions, interest, or taxes you may be required to pay. Actual interest would be higher due to daily compounding that is charged monthly to the account.
*The annual rate is based on a 360-day year. Note that the use of a 360-day year results in a higher rate of interest than if a 365-day year were used.