What is the rate for getting your paycheck early from a payday lender?

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In summary, the conversation discusses a person who is currently studying trigonometry but also looking at non-trig questions. They are due a $750 paycheck at the end of the week but want to receive the cash on Monday. A payday lender offers to make this happen for a fee of 2% of the paycheck, which means they are paying a rate of 182.5% for this service.
  • #1
mathdad
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Although I am currently in the trig sections of my textbook, I decided to also check out questions not involving trigonometry.

You are due a $750 paycheck at the end of the week (Friday), but want to get your hands on the cash on Monday. A payday lender offers to make this deal with you for a fee of 2% of the paycheck. What is the rate you are paying for this service? Assume a 365-day year.

R = rate, B = base , P = percentage given

R = P/B

R = 0.02/750

I do not think this is correct. Forgive my ignorance. This is a silly, easy question.
 
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  • #2
I = Prt -- Might be a good place to start. You have not specified a method for annualizing the rate.

t = 3/365
r = This is what we seek.
P = 750
I = 750 * 0.02

Go!
 
  • #3
The rate is 15.
 
  • #4
tkhunny said:
I = Prt -- Might be a good place to start. You have not specified a method for annualizing the rate.

t = 3/365
r = This is what we seek.
P = 750
I = 750 * 0.02

Go!

The options for this question are:

0.5%
18.55
7.14%
182.5%

Which is the answer and how is it done?
 
  • #5
RTCNTC said:
The options for this question are:

0.5%
18.55
7.14%
182.5%

Which is the answer and how is it done?

Let's start with:

\(\displaystyle I=Prt\)

Solve for $r$:

\(\displaystyle r=\frac{I}{Pt}=\frac{15}{750\cdot\frac{4}{365}}=\frac{73}{40}=\frac{365}{2}\%=182.5\%\)
 
  • #6
MarkFL said:
Let's start with:

\(\displaystyle I=Prt\)

Solve for $r$:

\(\displaystyle r=\frac{I}{Pt}=\frac{15}{750\cdot\frac{4}{365}}=\frac{73}{40}=\frac{365}{2}\%=182.5\%\)

Another amazing reply.
 
  • #7
MarkFL said:
Let's start with:

\(\displaystyle I=Prt\)

Solve for $r$:

\(\displaystyle r=\frac{I}{Pt}=\frac{15}{750\cdot\frac{4}{365}}=\frac{73}{40}=\frac{365}{2}\%=182.5\%\)

It is amazing how you went from I = PRT to the answer. Mark, this is what separates a true math guy from a math-guy-wanna-be. I have ZERO idea where the fraction 4/365 came from but I am just a math passionate, middle-aged man hoping to be like you and the rest of the tutors at MHB. A job well-done!
 
  • #8
RTCNTC said:
It is amazing how you went from I = PRT to the answer. Mark, this is what separates a true math guy from a math-guy-wanna-be. I have ZERO idea where the fraction 4/365 came from but I am just a math passionate, middle-aged man hoping to be like you and the rest of the tutors at MHB. A job well-done!

If you count from Monday to Friday, you find that is a 4 day period, and so this is 4/365 of a year. Since we are finding an APR (annual percentage rate), we want this 4 day period to be expressed in years. If you borrowed some amount of money, and had to pay 2% of it for every 4 days borrowed, you would find that after a year you have paid (2%/(4 days))*(365 days) = 182.5%.
 
  • #9
Aren't there 5 days from Monday to Friday? Shouldn't the fraction be 5/365.
 
  • #10
RTCNTC said:
Aren't there 5 days from Monday to Friday? Shouldn't the fraction be 5/365.

How many 24 hour periods are there from noon on Monday, until noon on Friday?
 
  • #11
RTCNTC said:
Aren't there 5 days from Monday to Friday? Shouldn't the fraction be 5/365.

I went from Friday to Monday (advance 3 days). That's why I managed only 3 days. The correct reading appears to be Monday to Friday (advance 4 days).

You can use Noon each day or beginning-of-day (BOD) or end-of-day (EOD), or virtually anything else. Just be consistent.

Noon Monday to noon Friday is 4 days.
EOD Monday to EOD Friday is 4 days.
BOD Monday to BOD Friday is 4 days.

EOD Monday to BOD Friday is 3 days. That's no good.
BOD Monday to EOD Friday is 5 days. That's no good.

182% is Loan Shark territory.
 
  • #12
MarkFL said:
How many 24 hour periods are there from noon on Monday, until noon on Friday?

Four. I got it.
 

FAQ: What is the rate for getting your paycheck early from a payday lender?

1. What is the average rate for getting your paycheck early from a payday lender?

The average rate for getting your paycheck early from a payday lender can vary depending on the lender and the amount of money being borrowed. Generally, the rate can range from 15-30% of the amount borrowed.

2. Is there a maximum rate for getting your paycheck early from a payday lender?

In most cases, there is a maximum rate set by state laws for getting your paycheck early from a payday lender. This rate can vary but is typically around 10-15% of the amount borrowed.

3. How do I know if the rate for getting my paycheck early from a payday lender is fair?

The best way to determine if the rate is fair is to compare it with other payday lenders in your area. You can also research state laws to see if the rate falls within the legal limits. Additionally, be sure to read the terms and conditions carefully before agreeing to any loan to ensure you understand the rate and any additional fees.

4. Are there any additional fees associated with getting your paycheck early from a payday lender?

Yes, there can be additional fees associated with getting your paycheck early from a payday lender. These fees can include processing fees, late fees, and rollover fees if you are unable to repay the loan on time. It is important to carefully read the terms and conditions before agreeing to a loan to understand all potential fees.

5. How can I lower the rate for getting my paycheck early from a payday lender?

The best way to lower the rate for getting your paycheck early from a payday lender is to shop around and compare rates from multiple lenders. You can also try negotiating with the lender for a lower rate or consider alternative options such as borrowing from a credit union or asking for an advance from your employer.

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