The current article describes the payday loan scheme and exemplifies the calculation of the payment schedule for this scheme.

The distinctive feature of this scheme is that there are no multiple installments, i.e. a whole amount payable for a payday loan is calculated as a single installment due at the end of a loan term. At the same time, the borrower can repay the payday loan in a lump sum or in several payments (early payments). The loan term does not commonly exceed one month in this scheme (the loan term can be customized and extended) and is specified in days, while the interest is charged on the basis of the daily interest rate.

Calculating the payment schedule for the payday loan

The total amount payable for the payday loan at the end of the loan term consists of two parts: the principal and interest. The principal exactly equals a loan amount:

                                                (1)

where

P - total principal amount,

A - loan amount.

The interest is calculated by the following formula:

                            (2)

where

I - interest,

DIR - daily interest rate,

ND - loan term in days.

It is worth noting that the daily interest rate in formula (2) is taken in hundredth. Therefore, the daily interest rate expressed as a percentage must be divided by 100. For example, the daily interest rate of 1% corresponds to DIR = 0.01.

Formulas (1) and (2) imply that the amount payable at the end of the loan term equals:

    (3)

where

T - total amount payable for the payday loan.

Example of calculating the payment schedule for payday loans

Suppose that the payday loan was taken out in the amount of 1000 USD at the daily interest rate of 0.25% for 13 days, i.e. A = 1000, DIR = 0.0025 and ND = 13.

Calculating the payment schedule

Based on formulas (1), (2) and (3), we calculate the principal, interest and the total amount payable for the payday loan:

As a result, the following payment schedule containing one installment is created: