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

Finance Dec 26, 2020

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?

Expert Solution

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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