To calculate the APR (Annual Percentage Rate) for a payday loan, we need to know the total cost of the loan, including both the principal amount borrowed and the interest charged. In this case, Sal borrowed $400 and was charged $70 in interest.
To calculate the total cost, we add the interest to the principal:
Total cost = Principal + Interest
Total cost = $400 + $70 = $470
Now that we have the total cost of the loan, we can calculate the APR. The APR is a standardized way to represent the cost of borrowing over a year, regardless of the loan term. Since Sal's payday loan is for 20 days, we need to convert this to a yearly rate.
To calculate the APR, we can use the following formula:
APR = (Total cost / Principal) * (365 / Loan term)
Where the loan term is the number of days in a year (365).
Let's calculate the APR:
APR = ($470 / $400) * (365 / 20)
APR = 1.175 * 18.25
APR ≈ 21.41%
Therefore, the APR for Sal's payday loan is approximately 21.41%.