Steven is beginning a new job but has not yet been paid. He needs $400 to pay his rent this month. Steven is going to borrow the money through a Payday Loan establishment. They are charging him an $80 fee to borrow the money for 10 days until he receives his first paycheck. What is the actual interest rate that Steven is being charged?

Question

Quizplus · Accepted Answer

The total cost Steven is paying to borrow $400 is $480 ($400 loan + $80 fee). To calculate the interest rate, we need to determine how much interest Steven is paying for a 10-day loan. 
Using the formula: interest = (total cost / loan amount) * (365 / number of days loan is taken)
interest = ($480 / $400) * (365 / 10) = 438%
Therefore, Steven is being charged an actual interest rate of 730%.

Steven Is Beginning a New Job but Has Not Yet