APR vs Fees Explained
Payday loan ads often talk about a flat fee, such as "$15 per $100 borrowed." That sounds simple, but the annualized APR can be very high because the loan term is short.
Why APR can look so high
APR annualizes the cost of credit. If you pay $15 to borrow $100 for 14 days, the cost is 15% for two weeks. Annualized over a year, that becomes roughly 391% APR.
| Borrowed | Fee | Term | Total repayment | Approx. APR |
|---|---|---|---|---|
| $100 | $15 | 14 days | $115 | 391% |
| $300 | $45 | 14 days | $345 | 391% |
| $500 | $75 | 30 days | $575 | 183% |
Which number should you use?
- Use APR to compare payday loans with credit cards, installment loans and credit union products.
- Use total repayment to understand how much must leave your account on the due date.
- Use finance charge to compare payday lenders within the same state and similar term.
Questions to ask before accepting
- What is the exact finance charge in dollars?
- What is the due date?
- What happens if payment fails?
- Can the loan be renewed or rolled over, and is that legal in my state?
- Is there a cheaper alternative available before the due date?
For a full disclosure page, see APR and fees disclosure.