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Homework answers / question archive / You are considering a payday loan for $100, which you will repay in 23 days when you will receive your next salary payment

You are considering a payday loan for $100, which you will repay in 23 days when you will receive your next salary payment

Finance

You are considering a payday loan for $100, which you will repay in 23 days when you will receive your next salary payment. The loan company, which advertises its "low" rate of 25%, wants a post-dated check for $125 dated 23 days in the future. What is the actual annual percentage rate (APR) that you will be paying if you accept their offer?

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effectively you are paying 25 as interest for 23 days

rate of interest for 23 days = 25/100 = 25%

APR = 25% * 365/23 =396.74%

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