Bad Credit

[lance7tour]

Megan has bad credit and the bank is going to charge her a fee of 2% on her loan amount as well as take out the interest upfront. the bank is offering her 15% apr for 6 months. calculate the effective interest rate.

I get:

1500 x 2% = 30
1500 x 15% / 2 = 112.50
1500-30-112.50 = 1357.50
pv -1357.50
fv 1500
n 180
= .055471
360 x .055471 = 19.97%

is this right/

 

[tkhunny]

1500.00 * 0.02 = 30.00 -- Good
1500.00 * 0.15/2 = 112.50 -- Good
1500.00 - 30.00 - 112.50 = 1500.00 - 142.50 = 1357.50 -- Good

R = Effective Interest Rate

1357.50 * R/2 = 142.50 ==> 0.20994475138121546961

That's how I'd do it. What were you doing? Where did 360 come from?

Can you say "Loan Sharking"? It's not quite that bad, but it's not good, as far as a short term loan goes.