A payday loan’s fee looks small next to a credit card’s stated interest rate — until it’s stretched over a full year the way APR requires.
How it works
APR compares the finance charge to the amount borrowed and the number of days in the loan, then annualizes it against 365 days. The CFPB’s own example: a $15 fee on a $100 two-week loan comes out to almost 400% APR, because that fee is charged again roughly every two weeks a similar loan runs.
What this does not include
This assumes a single loan term with no rollover. Many payday loans are rolled over into a new loan when the borrower can’t repay, which compounds fees on top of fees — a cost this single-loan APR figure does not capture.
How to use this calculator
- Enter the amount borrowed and the flat fee charged.
- Enter the loan term in days.
Frequently asked questions
Why is payday loan APR so much higher than a credit card’s?
Because the fee, though small in dollars, is charged for a very short term — annualizing a two-week fee multiplies its effective rate roughly 26 times over.
Does the lender have to disclose the APR?
Yes — the CFPB confirms lenders must disclose the APR before the loan is agreed to, specifically so it can be compared against other credit options.
Is a lower fee always a lower APR?
Not necessarily — a shorter term can make even a smaller fee annualize to a higher APR than a larger fee over a longer term.
