Payday loans are offered on a temporary basis. There is no point in applying a yearly interest rate on a loan that will only last 2 to 4 weeks. Instead, cash advance lenders charge flat fees. Thus, a $100 loan with a $15 lender's fee would equal an APR of about 390%. This is true if one were to use the following formula:
- 52 (weeks in a year) divided by 2 (period of temporary loan) = 26 (possible fee periods)
- 15 (amount of fee) multiplied by 26 = 390 (total yearly fee)
- $390 divided by $100 = 3.9 or 390% (APR)
When you break it down like that, it's easy to see why the "high APR" debate doesn't really make sense.
