A payday loan company charges a $25 fee for a $550 payday loan that will be repaid in 14 days using ordinary simple interest. Treating the fee as interest paid, what is the equivalent annual interest rate?

A payday loan company charges a $25 fee for a $550 payday loan that will be repaid in 14 days using ordinary simple interest. Treating the fee as interest paid, what is the equivalent annual interest rate?

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter7: Using Consumer Loans

Section: Chapter Questions

Problem 7FPE: Calculating interest and APR of installment loan. Assuming that interest is the only finance charge,...

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

A payday loan company charges a $25 fee for a $550 payday loan that will be repaid in 14 days using ordinary simple interest.

Treating the fee as interest paid, what is the equivalent annual interest rate?

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