Imagine you are discussing a one-year loan for $25,000 with a somewhat unscrupulous lender (you need to pay off your bookie, and traditional banks frown at making this type of loan). The lender quotes you a rate of 14.9% for one year, to which you agree. The lender states that in this unregulated market, the interest is paid upfront, and calculates the loan interest as $25,000 x 0.149 = $3,725. He gives you $21,275 in cash, and says he expects $25,000 back in cash in one year, not a day later. What is wrong here (other than questions of legality)?