The trick: a flat fee that hides a triple-digit APR
Payday lenders don’t quote an interest rate — they quote a flat fee per $100 borrowed. “Just $15 per $100” sounds trivial. But you only hold that money for a couple of weeks, and the entire balance is due at once. Convert the fee to an annual percentage rate, the way every credit card and loan is legally required to, and that $15 becomes an APR of roughly 391%.
The APR formula
APR = (fee ÷ $100) × (365 ÷ term days) × 100
A $15 fee per $100 over a 14-day term is 0.15 × (365 ÷ 14) × 100 ≈391%. Shorter terms push the APR even higher; the flat fee never changes, but the annualized cost does.
The rollover trap
The real damage comes from rolling the loan over. If you can’t repay on payday, the lender lets you pay just the fee to renew for another term — but the principal doesn’t budge. Pay $75 every two weeks on a $500 loan and after a few months you’ve handed over hundreds in fees and still owe the full $500. The CFPB found that the majority of payday loans are re-borrowed, and that this churn — not the one-time loan — is where borrowers get stuck.
What makes this calculator different
- The true APR, front and center. We convert the flat per-$100 fee into the annualized rate the industry would rather you not see.
- It models the rollover trap. Add rollovers and watch the fees stack up while the principal you owe never shrinks.
- It compares to real credit. See exactly how much more you’re paying versus a typical credit card or personal loan over the same time.
- It points to cheaper options. Payday Alternative Loans, credit unions, and employer advances usually cost a fraction as much.
Frequently asked questions
How does a payday loan work?+
A payday loan is a small, short-term cash advance — usually a few hundred dollars — that’s due in full on your next payday, typically two weeks out. Instead of an interest rate, the lender quotes a flat fee per $100 borrowed (commonly $10–$30). You either hand over a post-dated check or authorize a debit for the principal plus the fee on the due date. Because the term is so short and the whole balance comes due at once, a fee that sounds small is enormous when annualized.
Why is the APR on a payday loan so high?+
APR annualizes the cost of borrowing. A $15 fee on $100 is 15% — but you only had the money for about 14 days, not a year. Spread that same 15% across the roughly 26 two-week periods in a year and the true annual percentage rate is about 391%. The flat fee disguises a borrowing cost that, expressed the way every other loan is, dwarfs credit cards and personal loans. This calculator does that conversion so you see the real number.
What is the rollover or debt trap?+
If you can’t repay the full principal plus fee on the due date, many lenders let you “roll over” or renew the loan — you pay just the fee again to push the due date out another term, while the original principal stays untouched. Do that repeatedly and the fees stack up far beyond what you borrowed, yet you still owe the whole principal. The Consumer Financial Protection Bureau found that most payday loans are re-borrowed, and a large share of borrowers end up paying more in fees than they originally received.
What are cheaper alternatives to a payday loan?+
Several options cost a fraction as much: a Payday Alternative Loan (PAL) from a federal credit union is capped at a 28% APR; many credit unions and community banks offer small-dollar loans; some employers and apps offer paycheck advances at little or no cost; and a credit card cash advance — while not cheap — is usually far below payday rates. You can also ask creditors for a payment plan or hardship extension before borrowing. The comparison block above shows how much you’d save versus a typical card or personal loan.
Is a payday loan ever worth it?+
Rarely, and only if you’re certain you can repay the full amount on the due date and have no cheaper option — because the cost is reasonable only if it’s genuinely a one-time, single-term bridge. The danger is the rollover: if there’s any chance you’ll need to renew, the fees compound into a debt that can take months and hundreds of dollars to escape. If repayment in one term is uncertain, almost any alternative is cheaper.
Disclaimer: This calculator is for educational purposes only. Fees, terms, APR conventions, and the legality of payday lending and rollovers vary by lender and by state. The comparison rates are illustrative. This is not financial or lending advice.