Key takeaways
- Accrued interest is interest earned or owed but not yet paid or received.
- It builds up daily: principal × annual rate × days ÷ 365 (or 360, depending on the convention used).
- Every EMI clears the interest built up so far, then reduces your principal.
- If an EMI is missed or paused, interest keeps accruing and is usually added to what you owe.
Have you ever wondered why interest keeps adding up on your personal loan even before your next EMI is due?
Accrued interest is the interest that has built up on a loan, or on a fixed deposit, but has not been paid or credited yet.
On a personal loan, it is the interest you owe for the days since your last EMI, and it grows a little every day until the next payment clears it.
This guide explains the accrued interest meaning in simple terms, shows how it is calculated, and how it works across different financial products, from personal loans to fixed deposits and savings.
What accrued interest means
Interest on the money you borrow or invest builds up every day. The interest accrued meaning is simply that the amount has been added up but not paid yet. It only becomes “paid” when your EMI, or the bank’s interest credit, goes through.
As a borrower, accrued interest is a liability, known as interest payable. For the lender, or for you as a depositor on a fixed deposit, it is income that has been earned but not received, known as interest receivable.
Bank statements sometimes show this as “interest accrued but not due”, which means the interest has built up but the date for paying or crediting it has not come yet.
How to calculate accrued interest
The accrued interest formula most lenders and banks use is simple:
Accrued interest = Principal outstanding × annual interest rate × number of days ÷ 365 (or 360, depending on the convention used)
For example, take a ₹1,00,000 loan at 24% a year. The interest that accrues each day is ₹1,00,000 × 24% ÷ 365, which is ₹65.75. After 10 days, ₹657.53 has accrued, and after 30 days, ₹1,972.60.
Many EMI loans work out the monthly figure as the annual rate divided by 12 instead, so the same loan carries ₹2,000 of interest in its first month. Both methods are common, and your Key Fact Statement shows which one your lender uses.
Because Zype loans charge interest on a reducing balance, the interest that accrues each month is worked out on what you still owe, not on the original amount.
You can see the effect on your own loan with the EMI calculator.
Accrued interest vs interest paid
| Accrued interest | Interest paid | |
|---|---|---|
| What it is | Interest owed for the days since your last EMI or credit | Interest that has already been settled |
| When it changes | Grows every day | Changes only when you pay |
| Where you see it | Foreclosure statement, loan account, “interest accrued but not due” on deposits | EMI receipts, repayment schedule, interest certificate |
| Effect on what you owe | Adds to the payoff amount until cleared | Already cleared; only principal remains |
Accrued interest on a personal loan
Say you take a loan of ₹1,00,000 at 24% a year on a reducing balance, repaid over 12 months. The EMI is ₹9,456.
1. With every EMI
Each EMI first pays the interest that has built up since the last one, and the rest goes into your principal.
| Month | EMI | Interest accrued and paid | Principal repaid | Balance after EMI |
|---|---|---|---|---|
| 1 | ₹9,456 | ₹2,000 | ₹7,456 | ₹92,544 |
| 2 | ₹9,456 | ₹1,851 | ₹7,605 | ₹84,939 |
| 3 | ₹9,456 | ₹1,699 | ₹7,757 | ₹77,182 |
| 4 | ₹9,456 | ₹1,544 | ₹7,912 | ₹69,269 |
Notice how the interest falls each month while the EMI stays the same. That is because interest is charged only on the balance you still owe. Our post on flat vs reducing interest rates explains why this costs less than a flat rate.
Our guide on EMI interest and principal shows what the complete schedule looks like.
2. Broken-period interest: before your first EMI
Interest on your loan starts from the day the money reaches your bank account. But your EMI is usually due on a fixed date each month, so there can be a gap before your first full EMI cycle begins.
Say you take a loan on 20 November, and your EMI is due on the 5th of each month. Interest accrues for the 15 days from 20 November to 5 December before the first full cycle begins. For a ₹1,00,000 loan at 24%, you would owe about ₹986 for these 15 days. This is called broken-period interest.
Lenders either deduct this amount at disbursal or add it to your first EMI, which is why a first EMI can look different from the rest. Interest should be charged only from the day the money is disbursed, and only for the days the loan is outstanding, not for a full month. Before you sign, the Key Fact Statement your lender must give you under RBI’s 2025 directions for NBFCs shows the all-in cost and the repayment schedule, so you can see how the first EMI is worked out.
3. When you close the loan early
Say you have repaid 4 of your 12 EMIs, and 8 are still left. After paying your 4th EMI, you decide to pay off the whole loan.
To close your loan, you will pay 2 things:
- The loan amount still left: ₹69,269
- Interest for the 15 days since your last EMI: about ₹683
If you had kept paying EMIs instead of closing early, you would have paid ₹6,378 of interest over the remaining months, so closing early saves you about ₹5,695. Some lenders charge a fee for closing a loan early.
Zype charges nothing for closing a loan early, and you can check the payoff on your own loan with the foreclosure calculator or in our prepayment guide.
4. During a moratorium
Sometimes a lender allows a break from EMIs, for example after a natural disaster. This break is called a moratorium.
A moratorium pauses your EMIs, but it does not pause interest. For example, if the same ₹1,00,000 loan had a three-month moratorium, about ₹6,121 of interest would accrue, and the lender would add it to your principal. Your new balance would be ₹1,06,121, the EMI over 12 months would rise from ₹9,456 to ₹10,035, and your total interest would go up from ₹13,472 to ₹20,417. Our post on the moratorium period covers this in detail.
What happens to the interest when an EMI is missed
If an EMI is not paid, the interest in it is still owed, and interest keeps accruing on the overdue amount at your loan’s normal rate.
The lender may also levy a late payment charge. Under RBI’s 2025 directions on penal charges, that charge must be a penal charge, not extra interest added to your rate, and no further interest can be charged on it.
Our guide to penal interest explains the difference.
Accrued interest on other financial products
Accrued interest does not only apply to loans. It also applies to the money you save and invest. The idea stays the same: interest builds up over time and is paid later. The only difference is who pays it and who receives it.
Fixed deposits and savings
On a fixed deposit, the bank owes you the interest. It builds up every day, but you receive it only on the payout dates of your deposit. For example, say you put ₹1,00,000 in a fixed deposit at 7% a year. You earn about ₹19 a day.
After 6 months, ₹3,490 of interest accrues if the bank uses simple interest, or about ₹3,531 with quarterly compounding. On a cumulative FD, this interest is added to your deposit and paid only at maturity. On a non-cumulative FD, it is paid out monthly or quarterly instead.
Your FD statement may show this as “interest accrued but not due”. It means the interest has built up, but the date to pay it to you has not come yet.
Accrued interest in accounting
Businesses record accrued interest at the end of each accounting period so that their books show what they owe or are owed. The borrower records accrued interest as a cost it still has to pay. The lender records it as income it is still waiting to receive. When the interest is paid, both entries are cleared.
How to keep accrued interest low on your loan
- Pay every EMI on time. Late payments let interest build up on overdue amounts and add a late payment charge.
- Prepay when you can. Every rupee of principal you repay early stops interest accruing on it.
- Read the Key Fact Statement. It shows the rate, the method and any broken-period interest before you sign. Our guide explains the Key Fact Statement.
- Compare offers on cost, not just EMI. Before you apply for a personal loan, check the total interest you will pay over the tenure.
Frequently Asked Questions
What is accrued interest in simple words?
In simple words, accrued interest is interest that has built up over time but has not been paid yet. On a loan, it is what you owe for the days since your last payment; on a deposit, it is what the bank owes you.
What is accrued interest meaning in Hindi?
In Hindi, accrued interest is called उपार्जित ब्याज: ब्याज जो समय के साथ बन गया है, लेकिन अभी तक चुकाया या मिला नहीं है।
What does interest accrued but not due mean?
It means interest has built up, but the date for paying or receiving that interest has not arrived yet.
Is accrued interest added to the principal?
Usually not on a regular EMI loan, because each EMI clears it. It is added to the principal when payments are paused, for example during a moratorium.
Do I pay accrued interest when I close a loan early?
Yes. To close a loan, you pay the outstanding principal plus the interest accrued from your last EMI to the closing date.
Why is my first EMI different from the rest?
It often includes broken-period interest, which is the interest that accrued between the day your loan was paid out and the start of your first EMI cycle.
