Payday loans are loans that allow you to borrow money from an upcoming paycheck that you will use to pay it back. These loans are usually unsecured, meaning you do not have to back your loan with property and are fairly easy to get. However, that makes the loans riskier for lenders, so they charge high finance charges. These usually are a flat dollar amount rather than an interest rate, so you must manually calculate the interest rate. According to the Consumer Federation of America, more than $35 billion in payday loans was issued in 2008.
Determine the amount of money that you will borrow, the amount of the finance charge and the term of the loan.
Divide the amount of the finance charge by the amount of the loan. For example, if the loan is $200 and the finance charges are $20, divide $20 by $200 to get 0.1.
Multiply the number derived in step two by 365 and then divide by the number of days of the loan. For example, you multiply 0.1 by 365 to get 36.5 and then if the loan is for 10 days, divide by 10 to get 3.65.
Multiply the number derived in step three by 100 to get the annual percentage yield, which is the interest rate you pay on your payday loan.