Question

Garth had unexpected expenses this month and didn’t have enough in his saving account to pay the rent of $600. He went to Loanshark Larry’s to borrow the money until his next paycheck 15 days from now. Larry charges $100 interest for the 15 days. What is the APR for this payday loan?

Answer 1

APR for the loan is 405.555%

Explanation:

Amount borrowed by Garth from Loanshark Larry’s = $600

Duration for which money is borrowed = 15 days

Internet charged by Loanshark Larry’s for 15 days = $100

so Interest charged by Loanshark Larry’s for 1 day = $100/15

APR is Annual Percentage Rate that is rate of interest per year.

1 year = 365 days (Assuming year in discussion is not leap year)

so interest charged by Loanshark Larry’s for a year is

interest charged for 365 days = Interest charged by Loanshark Larry’s for 1 day multiplied by 365

⇒ (100/15)×365 = 2433.33$

so APR (in %) = (annual interest)*100/(amount borrowed) = 2433.33$ * 100/600 = 405.555%

so APR for the loan is 405.555%