Just watch the crime watch show on the TV and know that how the Loan Shark do the interest calculation. Take one example, a person loan $1000 from the Loan Shark, they will first charge 20% interest. They will take away $200 and only give the borrower $800. The borrower need to pay instalment of $200 in every 5 days or a week. This instalment will last for 5 rounds.
Let's do a very basic simple interest calculation. If a person every month borrow $800 and pay back $1000 per month and last for a year.
Then total borrowing per year will be $800 x 12 = $9600.
Total Return per year = $1000 x 12 = $12000.
Interest charge is $12000 - $9600 = $2400.
Interest rate per annual = 2400 / 9600 = 25%
It is a really very high profit return and the actual interest rate is confirmed more than 25% per annual as the borrower need to pay back the instalment in every 5 days. No wonder there still have people doing illegal money lending despite the police take alot of action against it.
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