Federal law requires all lenders to disclose borrowing costs as an Annual Percentage Rate (APR) to allow standardized comparisons, even for two-week emergency loans.
1. The TILA APR Formula
The Standard APR Formula
$$\text{APR} = \left( \frac{\text{Finance Charge (\$)}}{\text{Loan Amount (\$)}} \right) \times \left( \frac{365}{\text{Term (Days)}} \right) \times 100$$ On a $100 loan with a $15 fee for 14 days: $$\text{APR} = \left( \frac{15}{100} \right) \times \left( \frac{365}{14} \right) \times 100 = 0.15 \times 26.0714 \times 100 = 391.07\%$$
| Loan Amount | Finance Fee ($15 per $100) | Loan Term | Disclosed Nominal APR |
|---|---|---|---|
| $100.00 | $15.00 | 14 Days | 391.07% APR |
| $300.00 | $45.00 | 14 Days | 391.07% APR |
| $500.00 | $75.00 | 30 Days | 182.50% APR |