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

Loan Principal =$100

Loan Principal +Interest payable =$125

So Interest for 23 days =$25

Interst for a year (365 days )=25/23*365=$396.74

So the Interest payable on $100 for 365 days =$396.74

Therefore , the APR on the loan is 396.74%

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