Short-term cash advances and payday loans typically quote borrowing costs as a flat dollar fee per $100 borrowed (e.g. $15 per $100). Under the federal **Truth in Lending Act (TILA)**, lenders must express this cost as an **Annual Percentage Rate (APR)** to enable fair comparison across various credit products.
1. Short-Term Advance APR Calculation Formula
| Loan Amount | Flat Fee (14-Day Term) | Nominal 14-Day Rate | Annualized APR (365 Days) |
|---|---|---|---|
| $100 | $15.00 | 15.00% | 391.07% |
| $300 | $45.00 | 15.00% | 391.07% |
| $500 | $75.00 | 15.00% | 391.07% |
| $1,000 | $150.00 | 15.00% | 391.07% |
2. Mathematical Derivation of Annual Percentage Rate
APR = (Finance Charge / Principal) * (365 / Loan Term in Days) * 100
Example for a $15 fee on a $100 loan over 14 days:
APR = (15 / 100) * (365 / 14) * 100
= 0.15 * 26.0714 * 100
= 391.07%💡 Consumer Transparency Rule
Never agree to a loan without reviewing the full federal TILA disclosure box specifying total finance charges, the amount financed, the payment schedule, and the exact APR.