Eddie wrote a $280 check to a check holding company. which gave him $260 in cash. After two weeks the company will cash his $280 check. What is the annual simple interest rate for this loan?
1 Answer
Feb 1, 2018
Roughly 200%
Explanation:
The amount of interest being charged is $20
Eddie has the use of the $260 for 2 weeks before the check is cashed, meaning that the interest isn't collected for 2 weeks (with the cheque being cashed).
To find the annual simple interest rate, we can use a ratio (52 weeks being roughly equivalent to 1 year):
To give some sense of this answer, credit card companies in the USA are limited by law to charging (I believe) 39.6% interest per year.