Payday Loan APR Calculation: Truth in Lending Act (TILA) Math & Finance Charge Breakdown
By My Payday Advance Consumer Underwriting & Financial Literacy Council
Understanding short-term APR mathematics: converting a $15 per $100 finance charge on a 14-day loan into an annualized percentage rate under federal TILA disclosures.
Under the federal Truth in Lending Act (TILA, 15 U.S.C. § 1601 et seq.) and Regulation Z, lenders are legally required to disclose the annualized percentage rate (APR) of credit rather than simply quoting flat dollar fees.
1. The Mathematics of Short-Term APR
Loan Parameter
Example 14-Day Loan
Formula Component
Principal Borrowed
$500.00
Principal (P)
Finance Charge Fee
$75.00 ($15 per $100)
Finance Charge (F)
Loan Term
14 Days
Term Days (D)
Annualized APR
391.07%
`(F / P) * (365 / D) * 100`
📐 APR Step-by-Step Mathematical Calculation
1. Fee Ratio = $75 / $500 = 0.15 (15% for 14 days)
2. Annual Multiplier = 365 days / 14 days = 26.0714
3. Annual Percentage Rate = 0.15 * 26.0714 * 100 = 391.07% APR
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My Payday Advance Consumer Underwriting & Financial Literacy Council
Our financial research team monitors Truth in Lending Act (TILA) compliance standards, CFPB small-dollar lending enforcement, state usury laws, and credit union PAL program benchmarks.
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