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?
Accepted Solution
A:
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%.