What’s the Best Day of the Month to Set Your Business-Loan Repayment Date?

Choosing a repayment date for your business loan might seem like a minor administrative task. But this simple choice can have a real impact on your company’s cash flow and the total interest you pay.

While your monthly payment amount stays the same with a fixed-rate annuity loan, the day you make that payment influences how much interest accrues, especially when it’s calculated daily. The good news is, many lenders offer flexibility.

So, the real question is: Is it better to pay earlier in the month or later?

Disclaimer: This is a simplified, illustrative example for general informational purposes. In the real world, loan agreements can vary significantly in how they calculate interest (daily, monthly, etc.), and fees or lender policies may apply. Always refer to your specific loan documents for exact terms.

Let’s Set the Scene: A Sample Loan

To see how this works, let’s use a hypothetical example:

• Loan Amount: $500,000

• Term: 6 years (72 months)

• Interest Rate: 7% fixed

• Repayment Type: Annuity

• Monthly Payment: ≈ $8,524.50

• Daily Interest Rate: 0.07 / 365 ≈ 0.00019178

The Showdown: 5th of the Month vs. 20th of the Month

Let’s compare two different repayment dates, with a 15-day gap between them.

• The Early Bird: Payment on the 5th

• The Late Payer: Payment on the 20th

Those 15 days make a small but measurable difference thanks to daily interest.

Step 1: What happens in the first payment?

When you make your first payment of $8,524.50, it’s split between interest and principal.

• Interest Portion: $500,000 × (0.07 / 12) = $2,916.67

• Principal Portion: $8,524.50 – $2,916.67 = $5,607.83

By paying on the 5th, you reduce your outstanding principal by $5,607.83 fifteen days sooner than if you paid on the 20th.

Step 2: The Power of Daily Interest

Every single day you avoid carrying that principal balance saves you money.

• Daily Interest Saved: $5,607.83 × 0.00019178 ≈ $1.08 per day

Now, multiply that daily saving over the 15-day gap:

• $1.08 × 15 days ≈ $16.15 saved in the first month alone.

What Does This Add Up To?

By consistently choosing the 5th over the 20th for your repayment date, you could save approximately:

• $16.15 per month

• About $193.80 per year

• Roughly $1,163 over the full 6-year loan term

While this may not seem like a fortune, it’s essentially free money saved—a direct result of a simple, strategic decision. For a growing business, these savings can add up across multiple financial products.

Remember, this is a general example. Your actual savings will depend on your loan’s specific terms, balance, and interest rate.

How to Choose What’s Right for Your Business

So, should everyone pay on the 1st of the month? Not necessarily. It’s about balancing savings with practicality.

• Choose an Early-Month Date (e.g., the 1st-10th) if:

  • Your primary goal is minimizing total interest cost.

  • You have consistent cash flow at the beginning of the month, making it easy to cover the payment.

• Choose a Late-Month Date (e.g., the 20th-28th) if:

  • Your business has uneven cash flow and you need more time to collect receivables.

  • The benefit of increased liquidity and avoiding potential cash crunches outweighs the modest interest savings.

The Bottom Line

Paying your business loan earlier in the month can lead to consistent, long-term interest savings. However, the “best” date is the one that aligns with your company’s unique cash flow cycle.

Your Action Item: Review your loan agreement and talk to your lender. If you have flexibility, run a quick analysis of your cash flow. A small change today could put more of your hard-earned money back into your business tomorrow.