Concepts
Capital (principal, pääoma) is the amount of money, for which the interest is paid for: a loan, a deposit, an investment or a mature bill.
Interest (korko) is either paid or received compensation of the loan money. It is given in currency. The (interest) rate is the same in percentage.
Interest rate (korkokanta) is the ratio of the interest per time. It is given in percentage and it is usually as annual interest.
(Interest) time (korkoaika) indicates the time used to calculate the interest rate. This may therefore be the loan period or the time elapsed from the due date of the invoice due.
If interest rate is given as annual interest, then interest time must be given in years. There are three possible case for informing time with number of days:
- real/360: There are 360 days in a year and the number of days is actual number of days. (ECB)
- real/365 (or 366): Actual number of days in a year and the number of days is actual number of days. (Typical in Finland for savings)
- 30/360: There are 30 days in a month and 360 in a year. The least used method but it is used for calculating residual tax.
Example 1.
A short-term credit was drawn January 20 and was paid at once the same year in March 15 (not a leap-year). What is the interest time in years in each cases.
| | 1) real/360 | 2) real/365 | 3) 30/360 |
| January | 31-20 =11 | 31-20 =11 | 30-20 =10 |
| February | 28 | 28 | 30 |
| March | 15 | 15 | 15 |
| Total | 54 | 54 | 55 |
| Interest time in calculations | | |