Question

A payday loan company charges a $35 fee for a $350 payday loan that will be repaid in 19 days. Treating the fee as interest paid, what is the equivalent annual interest rate?

Answer 1

Answer:

  192.1%

Step-by-step explanation:

The formula for the amount of interest is ...

  i = Prt . . . . . where i is the interest amount, P is the principal, r is the annual rate, and t is the number of years. (Here, we have a fraction of a year.)

Solving for the rate, we have ...

  r = i/(Pt)

For "exact" interest, we use 365 days in the year. So, for a time of 19 days of 365, the interest rate is ...

  r = $35/($350·19/365) ≈ 1.921 = 192.1%