The terms, “interest rate”, “cost of borrowing”, “return on investment”, and “time-value of money” were coined and defined by money-”lenders”; in any “loan” transaction, their values are equal. (For proof of that, see any textbook on bona-fide “loan”-math; titles are available
from “loanmath33@yahoo.com”.)

Mankind has long known how to do “loan”-math;
grifters and their lackeys have long known how to deceive those ignorant of it.

If the fortnightly “payday loan fee” is $9.66 per $100 or more, alleging “annual interest rate” to be less than 1,000 percent per year demonstrates either abysmal ignorance or a desire to deceive.
===============================================

In the formula on question 16, should you divide the rate the same # as the power (365/14) and should the power be a negative #?

Thanks.

APR = (1 + i)(365 / 14) – 1

In case the HTML for the superscript doesn’t come through the comment filters right, that’s 1.25 to the power of (365 / 14) minus 1.

That’s 336.18. It looks even scarier when you shift the decimal point 2 places to the right to get a percentage. Yes, that comes to 33618% APR when it is compounded. Assuming the victim isn’t cut off long before that, he could borrow $100 to get his car fixed and find himself owing $33,618 a year later.

More realistically would be rolling the loan over 3-4 times before he’s cut off. Let’s say 4 times. After 8 weeks, the balance on the loan will be $244. If the pay day loan people decide that they can risk that $244, they can always let him go another 8 weeks, by which time the balance will have grown to $596.

Thanks.

Here are interesting posts and news this week from the MoneyBlogNetwork members and beyond: MightyBargainHunter asks if it’s time to sell your house and rent. Five Cent Nickel tells how to profit from 0% balance transfer credit card offers. Blueprint

And of course let’s not forget those thieves at the hamburger stores who cook a hamburger with ingredients that cost one dollar and then charge us THREE DOLLARS for that same hamburger! That’s a 200% markup for a measley hamburger.

My point is that the payday stores aren’t just raking in pure profit. They have to pay rent, they have to pay someone to stand behind the counter, security, insurance, utilities, taxes, defaults by the highest risk borrowers. And at the end of the day they walk away with only $15 per transaction. Big banks can charge lower rates for secured loans to better credits because they are much larger dollar amounts. A 1% spread on a $500,000 mortgage is $500 per year. It’s a lot easier to pay the overhead on $5000 transactions than $15 transactions. If anyone thinks payday lenders are making outsized profits, there is nothing stopping them from opening up their own store across the street and charging less. That’s the free market.