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23 October, 07:31

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?

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  1. 23 October, 08:23
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    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%.
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