Payday Loan APR, How $15 per $100 Becomes Almost 400%
A payday loan is usually priced in dollars, not percentages: "$15 for every $100 you borrow." That sounds like 15%, and 15% sounds like a normal-ish rate. It is not. The fee is charged for a couple of weeks, not a year, and once you put it on the same yearly scale as other credit, the number is startling. The conversion takes one line of arithmetic.
1. What a payday loan is
The CFPB says there is no set definition, but a payday loan is usually a short-term, high-cost loan, generally for $500 or less, that is typically due on your next payday. The due date is typically two to four weeks after the loan is made, and it is usually repaid in a single payment.
To repay, you generally write a post-dated check for the full balance including fees, or authorize the lender to withdraw the money electronically from your account. The CFPB also notes that payday lenders do not generally verify your ability to repay the loan while meeting your other financial obligations.
2. The fee, in the CFPB's numbers
According to the CFPB, payday lenders add a finance charge that can range from $10 to $30 for every $100 borrowed, depending on state law. A charge of $15 per $100 is common.
Their example: borrow $300 before your next payday at $15 per $100, and it costs $345 to pay back. The CFPB says this equates to an annual percentage rate of almost 400% for a two-week loan.
3. The conversion, step by step
An APR is a yearly rate. To turn a two-week fee into one:
- Fee as a share of the loan: $15 / $100 = 15% for the loan period.
- Number of loan periods in a year: 365 days / 14 days = about 26.07.
- Multiply: 15% x 26.07 = about 391%.
That is the "almost 400%" the CFPB describes. Note that this is a simple annual rate. It does not assume the fee compounds; it just puts a two-week price on a one-year scale so you can compare it with other credit.
The same math for the CFPB's full fee range, all on a 14-day loan:
| Fee per $100 | APR for a 14-day loan |
|---|---|
| $10 | about 261% |
| $15 | about 391% |
| $30 | about 782% |
The length of the loan matters just as much as the fee. The same $15 per $100 on a 28-day loan works out to about 196%, because the fee is spread over twice as many days. That is still far above typical credit card rates.
4. Why the dollar figure feels smaller than it is
A $45 fee on a $300 loan is real money, but it does not feel catastrophic, and that is the trap. For comparison, assume a credit card charging 24% APR. Carrying the same $300 on that card for 14 days would cost about $2.76 in interest. The payday loan costs more than 16 times as much for the same two weeks.
That is what an APR is good for: it puts very different loans side by side on one yardstick.
5. What rollovers add
The real cost grows when the loan is not paid on the due date. The CFPB explains that if your state allows rollovers, the lender may let you pay only the fees due and extend the due date. You are then charged another fee and still owe the entire original balance.
In the CFPB's example, paying a $45 rollover fee on the $300 loan means that when the extension ends, you still owe $300 plus another $45 fee. That is $90 for borrowing $300 for four weeks.
Keep rolling, and the fees pile up while the balance stays put:
| Weeks borrowed | Fees paid | Still owed |
|---|---|---|
| 2 | $45 | $300 |
| 4 | $90 | $300 |
| 8 | $180 | $300 |
| 12 | $270 | $300 |
After 12 weeks of rollovers, the fees nearly equal the amount borrowed, and the original $300 is still due.
6. Other costs on top
The CFPB lists more charges that can come with a payday loan, depending on state law:
- Late or returned check fees if you do not repay on time.
- Non-sufficient funds (NSF) charges from your own bank or credit union if the check or electronic withdrawal bounces.
- Prepaid card fees if the loan is loaded onto a prepaid debit card, such as fees for adding money, checking your balance, or monthly upkeep.
- Repayment plan fees, which some states allow and others prohibit.
Some state laws require payday lenders to offer an extended repayment plan to borrowers who have trouble repaying. If your state does, you may be able to get more time without extra fees, which stops the rollover cycle. Ask the lender before borrowing again.
7. Running your own numbers
For any short-term loan quoted as a dollar fee:
- Divide the fee by the amount borrowed.
- Divide 365 by the number of days until it is due.
- Multiply the two results.
If the answer is in the hundreds of percent, you are looking at very expensive credit, whatever the dollar amount looks like on the counter.
8. Key takeaways
- Payday loans typically charge $10 to $30 per $100 borrowed, with $15 being common, according to the CFPB.
- At $15 per $100 for 14 days, the APR is about 391%.
- Shorter loan terms push the APR higher for the same dollar fee.
- Rollovers add a new fee each time while the full balance stays owed: 12 weeks can cost $270 on a $300 loan.
- Convert any dollar fee to an APR before comparing it with other credit.