How it works

What “actual daily balance” means

The calculation

Each day the lender takes that day's ending balance and multiplies it by the annual rate divided by 365. That is the interest for that day. At month end the daily figures are added together and charged as one amount.

Nothing is rounded off to a monthly figure and nothing is averaged. If your balance was lower for eleven days because a paycheck landed, you are charged less for those eleven days.

Why the distinction is worth making

A great deal of writing about these products says interest is charged using the average daily balance method. Some products genuinely do work that way, and some third-party guides describe competing all-in-one products in exactly those terms.

The two methods often produce similar totals, but they are not the same thing, and describing one as the other misstates the product. On the Luminate Smart Equity Loan the calculation follows the actual daily balance.

What this means in practice

It means deposit timing has a real effect. Money that sits on the line for twenty days reduces the balance for twenty days' worth of interest.

It also means the effect is bounded. Timing changes the interest for the days involved — it does not change the arithmetic of what you owe. The larger driver, by a wide margin, is how much principal you actually retire and how early.