Loan servicing software calculates interest using configurable logic defined at loan setup. It supports simple interest, where interest is calculated only on principal, and compound interest, where accrued interest itself generates interest. The system applies this logic through its centralized interest accrual engine using the selected accrual frequency and day-count convention. For example, in a compound structure with daily accrual, interest is recalculated every day on the updated balance. This automation prevents inconsistencies that often arise when users alternate between formulas manually in spreadsheets or validate logic outside the system using tools such as the Margill Interest Calculator.