Question

A payday loan company charges a $30 fee for a $650 payday loan that will be repaid in 12 days. Treating the fee as interest paid, what is the equivalent annual interest rate?

Answer 1

30.41%

Step-by-step explanation

Step 1

find the interest for the 12 days

`\begin{gathered} 650\Rightarrow100\text{ percent} \\ 30\Rightarrow x \\ (650)/(100)=(30)/(x) \\ \\ 650\cdot x=30\cdot100 \\ x=(3000)/(650) \\ x=4.61\text{ \% } \end{gathered}`

it means will pay a rate of 4.61% in 12 days

Step 2

we have the interest for 12 days, if we treat the fee as interest paid, the annual interest rate is

`\begin{gathered} \text{Interest rate=365days/12days} \\ \text{Interest rate=30.41 \% } \end{gathered}`

I hope this helps you