How it works
A payday loan's danger is hidden by its scale — a $75 fee on a $500 loan sounds like a nuisance, not a crisis. This calculator translates that fee into the terms used for every other loan, and the translation is brutal. The cost of a loan is the fee relative to the amount and the time you hold the money. A $75 fee to borrow $500 for fourteen days is 15% for two weeks, and annualised that is an APR near 390%. The calculator computes it directly: fee divided by loan, scaled to a year by the term in days. Nothing else a household touches carries a rate like it — credit cards run 20-30%, personal loans single digits to low teens. The trap is mechanical as much as mathematical. The loan falls due in full on payday, which is exactly when the borrower is short, so it is rolled over for another fee — and a two-week loan quietly becomes a months-long cycle costing more in fees than the original amount. Use the tool to see the APR in black and white before signing, and to weigh the alternatives: a credit-union PAL, an employer advance, even a high-rate card is cheaper by an order of magnitude.
Formula
APR = (fee / loan) x (365 / days) x 100
Tips
- A $75 fee on $500 for two weeks is an APR near 390% — see it before you sign.
- The fee looks small because the term is short; annualising exposes it.
- Rolling the loan over is the trap — fees can exceed the original amount.
- A credit-union payday-alternative loan costs a fraction of a storefront loan.
- Even a high-rate credit card is cheaper by an order of magnitude.
Frequently asked questions
- What is the real APR on a payday loan?
- Typically 300-400%. A $75 fee to borrow $500 for fourteen days is 15% for two weeks, which annualises to roughly 390% APR. The calculator shows the exact figure — the fee looks small only because the term is so short.
- How do you calculate payday loan APR?
- Divide the fee by the loan amount, scale it to a full year by dividing 365 by the term in days, and multiply by 100. A $75 fee on $500 over 14 days is (75/500) x (365/14) x 100, about 391%.
- Why are payday loans so expensive?
- Because the fee is charged over a very short term. Fifteen dollars per hundred sounds modest until you realise it is for two weeks, not a year — annualised, it becomes a triple-digit APR. The short term is precisely what disguises the cost.
- What is the payday loan debt trap?
- The loan falls due in full on payday, exactly when the borrower is short, so it is rolled over for a fresh fee. Repeat that and the fees can exceed the original loan within months — a two-week fix becomes a cycle that is hard to escape.
- What are cheaper alternatives to payday loans?
- A credit-union payday-alternative loan (PAL), an employer paycheck advance, a payment plan with the biller, or even a high-rate credit card are all cheaper by an order of magnitude. Local charities and community assistance programmes can bridge a genuine emergency.