Interest usually accrues every day but is posted or collected once a month.
Daily accrual means each day's closing utilised balance is used in the calculation.
Monthly collection means the accumulated amount is debited to the overdraft account or recovered from a linked bank account on the lender's billing date.
The exact cycle and treatment of unpaid interest are stated in the loan agreement and Key Fact Statement.
Accrued daily, billed periodically
The annual rate is converted into a daily rate.
The lender calculates interest for each day, adds the daily amounts for the billing period, and then makes one monthly posting or collection.
This is why a mid-month repayment can reduce the same month's total interest.
Two common collection methods
There are generally two ways interest may be collected.
1. Added to the overdraft account
Some lenders add the monthly interest to the overdraft account.
This increases the outstanding balance.
2. Auto-debited from a linked bank account
Other lenders use eNACH or auto-debit from a linked savings account.
Neither method changes the fact that the underlying interest calculation may be daily.
A Varicash example
Varicash works with multiple lending partners, so the collection route can differ by the selected lender.
The product material illustrates both:
- Overdraft debit
- Linked-account auto-debit
The current sanction letter should be treated as final because billing dates and partner processes can change.
Do not wait for a reminder
Mark the due date and verify that the debit was successful.
If interest is not serviced as agreed, penal charges, account restrictions or recovery action may follow.
The Key Fact Statement should state the due-date framework and applicable charges.
| Event | Effect on interest |
|---|---|
| Withdrawal | Raises the daily utilised balance |
| Part repayment | Lowers the balance after credit |
| Month-end or billing date | Accrued interest is posted or collected |
| Missed collection | May trigger overdue treatment and disclosed charges |
A quick interest check
Before drawing, estimate the cost using:
Amount × Annual rate × Expected days ÷ 365
Also:
- Add disclosed fees
- Confirm the monthly billing date
- Check whether interest is debited to the overdraft or a linked account
- Repeat the estimate after significant withdrawals or repayments
The Bottom Line
Think of interest as a daily meter with a monthly bill.
Daily utilisation determines how much interest accrues.
The lending partner determines when and how that interest is collected.
Check both before using the facility.
Facing a financial emergency?
Check how much credit your mutual funds may support
Get an indicative eligibility check. The final limit and terms are decided by the lending partner.
Continue learning
Related questions
Explore other topics
Also read
Information on this page is general in nature. Eligibility, approved schemes, LTV, rates and charges depend on the regulated lender's current policy and the final loan documents. This is not financial advice. The content is purely for educational purposes.