Short answer

• Margin interest is charged on the amount you borrow from your broker to buy securities. Brokers usually compute interest daily using an annual margin rate, add (capitalize) it to your loan periodically (monthly or quarterly), and post it to your account as a debit (reducing your cash/equity) until it is paid.

How it’s calculated — step by step

1. Annual margin rate: the broker quotes an annual interest rate (for example, 8% p.a.). Brokers commonly use tiered rates: larger loans often get lower rates.
2. Convert to a daily rate: divide the annual rate by the number of days in the year the broker uses (usually 365; some use 360).
   • daily rate = annual rate / 365
3. Daily interest charge: multiply the daily rate by the outstanding borrowed principal that day.
   • daily interest = borrowed balance × daily rate
4. Sum daily charges: the broker totals the daily interest for the billing period (often a calendar month).
5. Posting / capitalization: at the end of the billing period they either debit the interest from your cash balance, or add it to your margin loan (i.e., capitalize it so future interest includes prior interest). Some brokers charge interest more frequently (daily) and some post it monthly or quarterly.

Simple formula examples

• If annual rate = r (as a decimal), borrowed amount = B, and broker uses 365:
  • daily interest ≈ B × (r / 365)
  • monthly interest (approx) ≈ B × r × (days in month / 365)

Numeric example

• Borrowed B = ₹100,000, annual rate r = 10% = 0.10, broker uses 365:
  • daily rate = 0.10 / 365 = 0.00027397
  • interest for one day = ₹100,000 × 0.00027397 ≈ ₹27.40
  • interest for 30 days ≈ ₹27.40 × 30 ≈ ₹822

How and when you’re charged

• The broker posts the accumulated interest at the end of the billing period (or sometimes daily). If you have cash available in the account, the broker will withdraw that cash to pay the interest; otherwise the interest is added to your margin loan (increasing your borrowed balance).
• When interest gets added to the loan, future interest accrues on the higher balance (effectively compounding).
• If interest payments push your equity down, it can increase the chance of a margin call.

Other important points

• Variable rates: margin rates are often variable and tied to a base/reference rate (broker’s call rate, bank base, or the broker’s published schedule); they can change whenever the broker updates rates.
• Tiered pricing: many brokers charge lower rates for larger loan amounts — check the broker’s schedule.
• Minimums & rounding: some brokers have minimum daily interest charges or round the daily interest; read the broker’s fee schedule.
• Interest on collateral: you’re charged even if borrowed securities have paid dividends — dividends may be credited to the account, but unless you use them to pay interest they won’t reduce the loan automatically.
• Tax: in many jurisdictions interest on margin loans used to buy taxable investments may be tax-deductible subject to rules — check local tax law or a tax advisor.
• Margin calls: unpaid interest increases your loan, which reduces your maintenance margin and can trigger margin calls or forced liquidation.

Practical checklist before using margin

• Know the broker’s annual rate schedule and how it’s converted to a daily rate.
• Know the billing/posting frequency and whether interest is capitalized.
• Monitor your cash and equity to avoid margin calls caused by interest accrual.
• Consider alternatives (partial repayment, limiting borrow amount) if interest makes a trade unattractive.

If you want, I can:

• show a short spreadsheet-style example with daily compounding for a month, or
• explain how margin interest rules differ at a specific broker (if you tell me which broker).