Understanding the Finance Charge and APR Calculation
Payday lenders generally charge a finance charge as a percentage or dollar amount per $100 borrowed. For example, a common charge is $15 per $100 borrowed on a two-week loan. That fee might not sound large at first, but because the loan term is so short, the annual percentage rate (APR) is much higher than the fee percentage suggests.
APR expresses the cost of credit on a yearly basis, which lets you compare loans of different terms and fees. To calculate it for a payday loan, you take the finance charge, divide it by the loan amount, divide that by the number of days in the loan term, then multiply by 365 and 100. For a $100 loan with a $15 fee and a 14-day term, this calculation results in an APR of about 391%—CFPB materials describe this as almost 400%.
State laws often set a maximum fee amount, typically ranging from $10 to $30 for every $100 borrowed. This means the APR can vary depending on where you live, but even at the lower end of that range, the annualized rate is still steep compared to most other credit products.
- APR annualizes the cost, making short-term loans comparable to longer-term credit.
- A $15 fee on $100 for 14 days equals roughly 391% APR.
Example Cost for a $500, Two-Week Loan
Let’s walk through an example to see how the costs add up for a common loan amount.
This is an illustrative calculation based on the common $15-per-$100 fee structure. Many state laws set maximum fees between $10 and $30 per $100, so your actual cost will depend on where you live and the lender's pricing.
How Fees Vary by State
Payday loan fees are not uniform across the country. Many state laws set a maximum fee amount, and that ceiling can range from $10 to $30 for every $100 borrowed. This range directly affects the APR you might be charged: lower per-$100 fees produce lower annualized costs, though even the lowest end of that range translates to an APR well above typical consumer loans.
Because fee caps are set at the state level, the cost of the same dollar amount can differ significantly from one state to another. Always check your state's regulations or ask the lender for a disclosure of the fee structure before agreeing to a loan.
- Fee caps range from $10 to $30 per $100 borrowed.
- State law determines the maximum interest and fees a lender can charge.
- Even the lowest common fee cap results in a triple-digit APR for a typical two-week payday loan, far above typical consumer credit products.
Rollover and Renewal Costs
If you cannot repay a payday loan on time, some lenders allow you to renew or roll over the loan. Rolling over means you pay a fee to delay repayment, but that fee does not reduce the amount you owe. For example, with a $300 loan that has a $45 finance charge, if you pay only the $45 fee to roll the loan over for another two weeks, the original $300 principal remains owed, and you will owe another $45 fee at the end of the extension. After just two rollovers, you could owe $90 in fees while still owing the full $300 principal.
Rollover charges can quickly lead to paying several hundred dollars in fees while your original debt never decreases. CFPB data from 2011–2012 showed that over 80% of payday loans are rolled over or followed by another loan within 14 days, underscoring how common this cycle is. Many states limit or ban rollovers, but where they are allowed, the costs can escalate quickly.
Recognizing the true cost of a rollover—paying a fee without reducing the principal—is essential to avoiding a debt trap. Some states offer extended payment plans, which allow you to repay in installments with no additional fees, but these are not available everywhere.
- A rollover fee does not reduce the principal you owe.
- Even a few rollovers can result in hundreds of dollars in fees while the original balance remains.
Late Fees and Non-Sufficient Funds (NSF) Fees
Missing your payday loan due date can trigger additional charges. If you do not repay on time, the lender may charge a late fee or a returned check fee, depending on state law. If your check or electronic authorization is not paid because you have insufficient funds, your bank or credit union may also impose an NSF charge. These fees add to the total cost and make it even harder to catch up.
The specific dollar amounts are not standardized, so they vary by lender and state. Before taking out a payday loan, ask for the lender's fee schedule that includes late and returned payment fees, and check your state's consumer protections.
- Lenders can charge late fees or returned check fees when you miss a payment.
- Banks and credit unions may add NSF charges when your payment is declined.
- Fee amounts are not uniform; they depend on state law and individual lender policies.
Comparing Payday Loan APR to Other Credit Products
To understand the true cost of a payday loan, compare its APR with that of other credit options. According to the CFPB, payday loan APRs can reach almost 400% for a typical two-week loan with a $15 per $100 fee. In contrast, credit card APRs generally range from about 12% to 30%, though actual rates vary by card and borrower.
The table below highlights the difference. A payday loan’s APR is many times higher than even the upper end of typical credit card rates, which is why financial experts often urge borrowers to consider alternatives like credit card cash advances, personal loans, or credit union options before turning to a payday lender.
| Credit Product | Typical APR Range | Fee Structure |
|---|---|---|
| Payday loan (two-week, $15 per $100) | About 391% (CFPB says almost 400%) | Finance charge, often $15 per $100 borrowed |
| Credit card | About 12% to 30% | Interest accrues on unpaid balance; possible additional fees |
Frequently asked questions
How is APR calculated for a payday loan?
The APR reflects the cost of borrowing on a yearly basis. For a payday loan, you take the finance charge, divide it by the loan amount, divide by the number of days in the loan term, then multiply by 365 and 100. For example, a $15 fee on a $100 two-week loan results in an APR of about 391%. The CFPB describes this as almost 400%.
Sources: Consumer Financial Protection Bureau (CFPB)Is a $15 fee per $100 borrowed typical?
Yes, a $15 fee per $100 borrowed is common for payday loans. State laws often set maximum fees between $10 and $30 per $100, so the exact amount depends on where you live and the lender's pricing.
Sources: Consumer Financial Protection Bureau (CFPB)What are rollover fees?
A rollover fee is what you pay to extend a payday loan without repaying the principal. The fee does not reduce the amount you owe. For example, rolling over a $300 loan with a $45 finance charge means you pay $45 to delay repayment, but the $300 principal remains, and you'll owe another $45 fee after the extension. Rollover charges can lead to paying several hundred dollars in fees while still owing the original amount.
Sources: Consumer Financial Protection Bureau (CFPB)Can I be charged late fees?
Yes, if you do not repay a payday loan on time, the lender may charge a late fee or a returned check fee, depending on state law. In addition, your bank or credit union might impose an NSF fee if your payment is declined due to insufficient funds. Fee amounts are not standard and vary by lender and state.
Sources: Consumer Financial Protection Bureau (CFPB)Sources
- What is a payday loan? — Consumer Financial Protection Bureau (CFPB)
- What are the costs and fees for a payday loan? — Consumer Financial Protection Bureau (CFPB)
- What does it mean to renew or roll over a payday loan? — Consumer Financial Protection Bureau (CFPB)
- CFPB Data Point: Payday Lending — Consumer Financial Protection Bureau (CFPB)