Interest Accrual Rate

The interest accrual rate is the amount of interest that accumulates between payment periods. This is important to note when there is a long period of time between payments. Borrowers need to carefully note the payment date to determine how much interest will be owed. If payments are due on March 1st and May 1st, for instance, then the interest accrual rate is the amount of interest that accumulates over that period of time. It might make sense for a debtor to reduce the period of time between the payment dates to reduce the amount of interest owed as high amounts of interest can accumulate quickly to make it impossible to handle payments. The interest accrual rate is important for financial instruments with a fixed repayment schedule. This permits investors to compare financial assets. This is a good example of the time parameter of money.