Calculate payday loan interest using APR: 700 clubs without members

In the past few years, interest rates on payday loans have been debated in some states. Critics have argued that lenders have already charged up to 700% of their loans.

Prohibition of reasonable regulation of excessive interest rates is worth supporting. But it should be noted that all of this raises the question: Does the payday lender actually actually charge 700% of the loan?

You may be surprised to know that the answer is no, but it is not. In fact, not a single customer who gets a loan from a reputable lender has actually paid 700% interest on their loan.

So how do the proponents of the loan interest rate caption claim that they are doing this? This is an interesting question and can also explain how to raise interest rates.

The first background of a payday loan. A payday loan is a short-term microfinance. The borrower withdraws the loan and agrees to repay it on the next payday, usually within 14 days. They must also pay a flat fee to use the loan. These fees may vary from lender to lender, but the typical cost of a $100 loan in many states is $15.

You will find that if the borrower pays $15 for a $100 payday loan, they actually only pay 15% interest. This is equivalent to a perfectly reasonable ratio. So how do critics of payday loans reach the price they quote?

To get there, they must apply from

Annual interest rate from

 Or APR, a loan, which generates a rate that is very different from the rate actually paid by the customer.

You may be familiar with APR as a measure of loan interest. The credit card company uses it and you see it printed on the ads of the new car. This is a completely legal and useful way to calculate long-term loan interest. This is because it measures the amount of interest paid by someone during the year.

However, when APR is applied to short-term loans, such as payday loans, it presents a distorted picture of the interest that the borrower actually pays.

APR is calculated by multiplying the total number of installations by the number of payment periods in a year. Therefore, in order to obtain the APR of a payday loan for a $100 loan, we multiply by 15 [cost] multiplied by 26 [the number of two weeks in a year], giving us a 390% interest rate.

Now, this is a very high number, which is even more impressive than saying that you pay $15 for a $100 loan.

However, as far as temporary loans are concerned, the real problem with using the annual interest rate is that no one can maintain a payday loan throughout the year. The loan industry best practices and state regulations simply do not allow it to happen.

In all states, the number of times a borrower can extend a payday loan is strictly regulated. Some states do not even allow loans to be extended once. In states that allow extensions, the number of times an extension can be completed is limited.

That's why using numbers like 700% does not accurately describe the prevailing conditions in the payday loan industry, and this strategy does not encourage constructive debits on how to provide credit to underserved communities.

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