A local finance company quotes a 16 percent interest rate on one-year loans. So, if you borrow $21,000, the interest for the year will be $3,360. Because you must repay a total of $24,360 in one year, the finance company requires you to pay $24,360/12, or $2,030.00, per month over the next 12 months. Is this a 16 percent loan?
What rate would legally have to be quoted?
What is the effective annual rate?