What is it?
A day count convention in financial contracts. It governs how interest accrues over time between payment dates and affects the calculation of interest amounts.
actual/360
UCC / CommercialLegal glossary term
Quick answer
Actual/360 usually means interest calculated on actual days but using a 360-day year. In contracts, it matters because it increases interest costs compared to actual/actual. Before signing, verify which day count applies to your loan.
Definitions
What is actual/360?
Legal Definition
Interest calculation method using actual days but a 360-day year for the denominator. This approach increases daily interest rates compared to actual/actual day count. The key distinction for practitioners is how it affects interest costs during months with 31 days.
Plain-English Translation
Imagine your allowance is calculated based on exactly how many days you did chores, but divided by 12 months instead of the actual calendar days. You'd get slightly less each month even if you did the same number of days.
Contract relevance
Why actual/360 matters in contracts
Ignoring this term can lead to unexpected interest costs and disputes over payment amounts. The borrower typically bears the risk of higher interest payments under this convention.
Document context
Where actual/360 appears in documents
| Document type | Section | Why it matters |
|---|---|---|
| Loan Agreement | Interest Calculation Section | Determines how much interest accrues between payments |
| Bond Indenture | Definitions Section | Specifies day count for interest calculations |
| Derivative Contract | Payment Terms | Affects settlement amounts for interest rate swaps |
| Commercial Paper | Interest Provisions | Impacts short-term interest calculations |
| Master Servicing Agreement | Calculation Method | Governs how interest is calculated on pooled assets |
Contract language
Common contract wording
| Contract wording | Plain-English meaning | What to check |
|---|---|---|
| Interest shall be calculated based on actual days elapsed in a 360-day year | Means you pay interest for actual days but at a higher daily rate | Check if this changes your interest costs compared to actual/365 |
| Day count convention: actual/360 | Uses actual number of days but divides by 360 | Verify if this is standard for your type of loan |
| Interest calculated on actual days over a 360-day basis | Results in slightly higher interest than actual/actual | Ask for an example calculation |
Red flags
Red flags to watch for
Wording examples
Clearer wording examples
Vague wording
Actual/360 day count
Clearer wording
Actual days divided by 360 days for annual interest calculation
Vague wording
Interest based on actual days with a 360-day year
Clearer wording
Actual number of days in period divided by 360, multiplied by annual rate
Note: “clearer” means easier to read — not legally reviewed or guaranteed safe.
Pre-signature checklist
What to check before signing
1
Calculate interest for a sample period using actual/360
2
Compare total interest paid over loan term with actual/actual
3
Verify whether leap years affect calculations
4
Check if the day count can change during the loan term
5
Look for provisions specifying how partial periods are calculated
6
Confirm whether prepayments use the same day count convention
Party impact
How actual/360 affects each party
| Party | What this party should check |
|---|---|
| Lender | Verify that actual/360 is appropriate for the loan type and market standard |
| Borrower | Calculate total interest cost difference between actual/360 and actual/actual |
| Trustee | Ensure interest calculations follow the specified day count convention |
| Regulator | Check whether the day count complies with applicable consumer protection laws |
Comparison
actual/360 vs similar terms
| Related term | Plain meaning | Main difference from actual/360 |
|---|---|---|
| Actual/Actual | Interest calculated on actual days divided by actual days in year | More favorable to borrower than actual/360 |
| 30/360 | All months treated as 30 days, year as 360 days | Simpler but less precise than actual/360 |
| 365/Actual | Year has 365 days, period uses actual days | Rare but sometimes used in certain loan types |
| Banker's Year | 360-day year with 12 equal 30-day months | Similar to actual/360 but uses fixed 30-day months |
Missing or vague
If actual/360 is missing or vague
If the actual/360 term is undefined or vague, disputes may arise over interest calculations for periods with unusual numbers of days.
Lenders and borrowers might disagree on how to handle leap years or month-end transitions.
Courts would need to interpret the parties' intent, potentially leading to inconsistent outcomes.
The absence of a clear definition could trigger renegotiation of interest terms after disputes arise.
Document map
Document section map
| Contract section | What to inspect |
|---|---|
| Definitions | Specify exact method for counting days and handling leap years |
| Interest Calculation | Detail how actual/360 applies to periodic interest accrual |
| Prepayment Penalty | Determine if actual/360 affects penalty calculations |
| Interest Rate Changes | Clarify if day count changes with interest rate adjustments |
| Default Interest | Verify if default rates use the same day count convention |
| Governing Law | Ensure state usury laws account for actual/360 calculations |
Visual model
Understand actual/360 fast
01
Commercial borrower | Takes a $1M loan with 5% interest using actual/360 | Pays $1,375 interest for a 99-day period
02
Corporate bond issuer | Issues bonds with actual/360 day count | Pays slightly more interest than with actual/actual during short periods
03
Real estate investor | Uses actual/360 in a loan agreement for property purchase | Faces higher interest costs during months with 31 days
Document context
How actual/360 shows up in legal documents
Why does it matter?
Ignoring this term can lead to unexpected interest costs and disputes over payment amounts. The borrower typically bears the risk of higher interest payments under this convention.
When does it matter?
When calculating interest accrual periods between payment dates or for prepayment amounts. Within each interest calculation period, the actual number of days is counted against a 360-day year.
Where is it usually seen?
Standard in loan agreements, bond indentures, and derivative contracts. Appears prominently in the interest calculation sections of commercial loan documents and ISDA master agreements.
Who is affected?
Lenders benefit from this convention as it results in slightly higher interest payments compared to actual/actual. Borrowers should scrutinize this term to understand their true interest cost and potential impact on cash flow.
How does it work?
First, count the actual number of days between payment dates. Then, divide this number by 360. Multiply this fraction by the annual interest rate to get the interest for the period. Finally, apply this interest amount to the outstanding principal balance.
Share
Send this term to someone else fast
Copy the link, open native sharing, or scan the QR code from another device.
Scan to open this glossary page on another device.
Wikipedia
Actual/360
Open Wikipedia for broader background on actual/360.
Open on Wikipedia →Knowledge graph
Where actual/360 connects to real contract work
This layer links the term to nearby glossary entries, document use cases, and contract-risk guides so readers can move from definition to context without dead ends.
Glossary
Use Cases
Mortgage Agreement
Real Estate Contracts: Your mortgage is likely the largest contract you will ever sign. Read it.
Invoice
Finance & Sales: Invoices look simple — but buried terms can trigger late fees, penalties, and disputes.
Payroll Statement
Finance & Sales: Your payslip is a legal document — every line should add up.
Source & disclosure
This page is an AI-assisted plain-English explanation based on LexPredict Legal Dictionary context and contract-review patterns. It is not legal advice. Meaning may vary by jurisdiction, industry, and exact clause wording.
Move from term to document
See the real contract language around this term
A glossary definition helps, but actual risk usually lives in the surrounding clause. Upload the full document and BrieflyGo will map plain-English meaning, red flags, and next steps.