Question

If a person borrows $450 at the beginning of the month and promises to pay back $543.75 on payday at the end of the month, what is their monthly interest rate? What is the associated APR of this payday loan?

Answer 1

253.472 %

Explanation:

Given,

Borrowed amount = $ 450,

Amount paid back after one month = $ 543.75,

Thus, the amount of interest paid in one month

= Amount paid back - Borrowed amount

= $ 543.75 - $ 450

= $ 93.75

Hence, the annual percentage interest rate (APR) for payday loans

`=\frac{\text{Interest}}{\text{Borrowed amount}* \text{number of days}}* 365* 100`

`=(93.75)/(450* 30)* 365* 100`

≈ 253.472 %

Note :

Number of days in a month = 30 ( approx )

Answer 2

Given:
Loaned amount: 450
Payment: 543.75
Term: one month

543.75 - 450 = 93.75 interest for 1 month.

93.75/450 = 0.2083 or 20.83% monthly interest.

0.2083 x 12 months = 2.50 or 250%

The monthly interest rate is 20.83% and its associated APR is 250%.