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 actual interest rate is calculated by considering the $80 fee on a $400 loan for 10 days. To annualize this rate, we consider how many 10-day periods are in a year (365/10 = 36.5) and multiply the fee by this to scale to a yearly rate. The interest for a year would be $80 * 36.5 = $2920 on a $400 loan, which is 730% annually.

Steven Is Beginning a New Job but Has Not Yet