Question 1190274: A payday loan company charges a $65 fee for a $700 payday loan that will be repaid in 16 days.
Treating the fee as interest paid, what is the equivalent annual interest rate?
Answer by math_tutor2020(3817)   (Show Source):
You can put this solution on YOUR website!
Assuming the loan company uses a 360 day year
(16 days)/($65 fee) = (360 days)/(x dollar fee)
16/65 = 360/x
16x = 360*65
x = 360*65/16
x = 1,462.50
This means that if the same rate was applied for the entire 360 day year, then the annual fee would be $1,462.50
The interest rate is then
(1,462.50)/(700) = 2.0893 = 208.93% approximately
Or if the loan company uses a 365 day year, then,
(16 days)/($65 fee) = (365 days)/(x dollar fee)
16/65 = 365/x
16x = 365*65
x = 365*65/16
x = 1,482.8125
x = 1,482.81
which leads to
(1482.81)/(700) = 2.1183 = 211.83%
So it will depend on how many days are defined in the financial year.
It's common to have payday loans with such high APR.
|
|
|
