What does a payday loan really cost?
A $300 payday loan at $15 per $100, due in 14 days, costs $45. As a yearly rate, that's 391.07% APR (3,723.66% APY). Each rollover adds another$45 and still leaves the $300 owed.
CFPB's example: $300 at $15 per $100 for two weeks. Add a card's cash advance terms below to compare.
Use your own numbersAPR vs. APY: why the same rate has two numbers
APR (definition, opens in a new tab) (annual percentage rate) is the yearly rate before compounding (definition, opens in a new tab).APY (definition, opens in a new tab) (annual percentage yield) is what you actually pay or earn in a year once interest (definition, opens in a new tab) starts charging, or earning, interest of its own.
Lenders quote APR because it's the smaller number. Banks quote savings in APY because it's the bigger one. A 9.00% APR car loan charged monthly costs 9.38% a year. A 24.00% APR card charged daily costs 27.11%. A 5.00% APY savings account is a 4.89% APR.
To compare any two rates fairly, put them in the same unit. "Show rates as" switches every rate on the page; the results don't change, because the rate underneath doesn't.
| Kind of rate | Quoted as | How it's applied |
|---|---|---|
| Car, mortgage and personal loans | APR | APR ÷ 12, each month |
| Credit cards | APR | APR ÷ 365, each day, compounded |
| Savings | APY | Monthly, from the APY |
| Investment returns | Yearly (APY basis) | Monthly: (1 + rate)1/12 − 1 |
A loan's APR can include some fees as well as interest, so turning it into an APY here covers interest only. Inflation (definition, opens in a new tab) is always a plain yearly rate.
What should I check before taking a payday loan?
A payday loan is priced as a flat fee for every $100 borrowed, due in one payment on the next payday. Next to the cash in hand, the fee looks small. Three questions bring the full cost into view: the fee as a yearly rate, what happens if it can't all be repaid, and what a card would charge.
What is the fee as a yearly rate?
A fee of $15 for every $100 sounds like 15%. It's charged for two weeks, though, and a year holds about 26 of those. As an APR (annual percentage rate, the yearly cost of borrowing) it comes to nearly 400%.
Can the whole amount plus the fee be repaid on the due date?
Where state law allows, a loan that can't be repaid can get a rollover (definition, opens in a new tab) or renewal: the fee is paid, the due date moves out, and a new fee is charged on the full amount, which is still owed.
What would a credit card cash advance cost instead?
Taking cash on a credit card usually costs a fee plus a higher APR than purchases, and interest starts the day the cash comes out. The statement and card agreement list both, and the calculator below compares them.
Quick guess
A fee of $15 for every $100, due in 14 days. What APR is that?
Using the fee and due date in the calculator below.
How does a payday loan compare with a credit card cash advance?
Enter the amount, the fee for every $100 and when it's due. You'll see the fee as an APR, what each rollover adds, and the total repaid. Add a card's cash advance fee and APR to see, side by side, what borrowing the same cash on the card for the same number of days would cost.
Payday loan
$45
in fees over 14 days
- Repaid in total
- $345
- Per $100 borrowed
- $15
Cash advance
—
Add the card's fee and APR
- Fee + interest
- —
- Repaid in total
- —
- Per $100 borrowed
- —
- Payday fee as a rate
- 391.07% APR (3,723.66% APY)
- Cash advance, fee and interest as a rate
- —
Both are the cost over the days borrowed, turned into a yearly rate the same way: cost per $100 × 365 ÷ days. A cash advance fee makes a short advance cost more than the card's APR.
If it can't all be repaid on day 14, a rollover adds $45 and the $300 is still owed.
See the month-by-month table
| After | Payday loan, rolled over | Cash advance, interest only |
|---|
Show the math
- Payday fee: amount × fee per $100 ÷ 100, due with the loan in one payment.
- Fee as an APR: fee per $100 × 365 ÷ days in the term. $15 over 14 days is 15 × 365 ÷ 14 = 391.07%. As an APY, the same fee charged every term and added to what's owed: (1 + fee ÷ 100)365 ÷ days − 1.
- Rollover: only the fee is paid; the next term charges the same fee again on the full amount.
- Cash advance: the fee is the percent of the cash or the minimum, whichever is greater, added to the balance. Interest is charged from the first day at APR ÷ 365 a day, compounded: (cash + fee) × ((1 + APR ÷ 365)days − 1). It's paid off on the payday loan's last due date.
- Over a year: the payday loan pays one fee at each due date that passes, with the whole amount still owed. The cash advance pays each month's interest, (1 + APR ÷ 365)365/12 − 1 on the cash plus the fee. Real cards ask for a bit more than the interest as a minimum payment (definition, opens in a new tab).
- Not included: state caps on fees or rollovers, ATM fees, late fees (definition, opens in a new tab), bounced-payment fees, and any effect on credit.
What does a payday loan cost after 1 year and 5 years?
A payday loan that keeps rolling over charges the full fee every term and pays down nothing. Over a year that's dozens of fees, with the whole amount still owed. A cash advance left on a card charges interest every day, on the cash plus its fee, so it keeps costing too, at a lower rate.
After 1 year
| Option | Fees and interest | Still owed |
|---|---|---|
| Payday loan, rolled over | ||
| Cash advance, interest only |
After 5 years
| Option | Fees and interest | Still owed |
|---|---|---|
| Payday loan, rolled over | ||
| Cash advance, interest only |
Fees and interest on borrowed cash are the third bucket, money that compounds against you. A rollover fee pays for time and nothing else, so the amount owed never moves.
What can I ask the lender, or try instead?
A payday lender quotes a fee, not a rate, and the whole amount comes due within weeks. Each rollover is another full fee. These questions put the total, the due date and the options for more time on the table before signing, along with a few places that may lend the same cash for less.
Before signing: the loan agreement lists the fee, the due date and how repayment is taken, often a post-dated check or an automatic withdrawal from a bank account on the due date.
Payday lender, before signing
“What's the total I'll repay, and on what date?”
The loan agreement sets the finance charge and the due date. One total and one date are easier to plan around than a fee per $100.
Payday lender, before the due date
“Does this state require an extended repayment plan, and is there a fee for it?”
Some states require payday lenders to offer more time to repay. Where they do, it can mean paying the loan off instead of rolling it over for another fee.
Card company
“What's the cash advance fee and APR on my card, and how much cash can I take?”
Many cards set a separate, lower limit for cash. The statement lists the cash advance APR, and the card agreement lists the fee.
Credit union or bank
“Do you offer small, short-term loans, and what are the APR and fees?”
Some credit unions and banks offer small loans meant as an alternative to payday loans. The APR and fees put them on the same scale as the calculator above.
The company the money is for
“Can I have more time on this bill, or split it into payments?”
When the cash is for a bill, more time from that company can cost less than a fee to borrow. It has to be asked.
For active-duty servicemembers and their dependents: the federal Military Lending Act caps the Military Annual Percentage Rate on payday loans and other consumer loans at 36%.
If the cash is for a pile of bills: a nonprofit credit counselor can look at every debt together, often for free. TheNational Foundation for Credit Counseling (opens in a new tab) can connect you with one.
Sources
- Consumer Financial Protection Bureau, What are the costs and fees for a payday loan?: The fee per $100, what a rollover adds, and repayment plans some states require lenders to offer.
- Consumer Financial Protection Bureau, What is a payday loan?: How payday loans work, what states allow and cap, and the 36% limit for active-duty servicemembers.
- Consumer Financial Protection Bureau, Can I withdraw money from my credit card at an ATM?: How a credit card cash advance works: its fee, its usually higher rate, and interest from the first day.
Educational only, not financial advice. The numbers are estimates based on what you enter. State law, the loan agreement and the card's terms decide the real fees, rates and dates.