In: Finance
The bank charges $15 for every $100 borrowed and must be repaid in three weeks. If you cannot repay this loan, it will roll over to a new payday loan with another charge.
There are 52 weeks in each year. You plan to borrow $400.
APR =
EAR =
Interest Rate for 3 weeks = Charges/Borrowed = 15/100 = 0.15
APR = Interest Rate for 3 weeks*52/3 = 0.15*52/3 = 2.6 = 260%
EAR = [(1+Interest Rate for 3 weeks)^(52/3)]-1 = [(1+0.15)^17.3333]-1 = 11.27446-1 = 10.27446 = 1027.446%