If you were to borrow ($500) and borrow it for the maximum term (31 Days) and you get the maximum APR rate (456%) the total cost to repay would be $576.85. This is $76.85 in interest and a monthly interest rate of 38%.
Payday loans are known to be an expensive form of credit due to their high interest rates. This form of loan should really only be used for short-term or emergency purposes.
The cost of a payday loan will vary depending on the lender and also borrowers will be assessed on a case-by-case basis. However, the Consumer Financial Protection Bureau reports that the average cost of a loan from a payday lender will be approximately $15 per every $100 borrowed. This is the equivalent of an APR of 391% for a two-week loan.
Payday loans end up being far more expensive if the loan is not fully repaid on the first payday as additional fees are incurred. This is why payday loans are notorious for entering borrowers into a vicious spiral of debt. Borrowers often end up owing more in interest than the original loan amount. The Pew Charitable Trusts estimate that borrowers pay an average of $520 in fees in order to borrow $375.
How Much Are Payday Loan Interest Rates?
Payday loans are known as having some of the highest interest rates on the market with APR sometimes exceeding 500% or even 1,000%. Even with lending caps and state regulations, payday loans are an expensive form of credit.
Typically, payday lenders will charge between $15-$20 interest for every $100 borrowed. Like other forms of credit, interest rates are calculated on an annual percentage rate basis (APR); however, payday loans have an average range of 391% to more than 521% which is far higher than other forms of credit. For reference, the average credit card interest rate in 2021 was 15.91% according to the Federal Reserve.
How Much Can You Borrow With a Payday Loan?
The amount that you can borrow with a payday loan will depend on state laws and on your personal finances. Some states have actually banned payday loans due to their high risk nature. Other states may have a payday lending cap limiting how much you are able to borrow. This can be anywhere from $50 or to borrow $1,000 depending on the state.
However, regardless of the state that you are in, your lender can determine whether or not you can be approved for the highest amount permitted by law. This will depend on your personal circumstances and financial profile including other monthly debts, credit history and income.
In recent years, some states have increased legislation surrounding payday loans meaning that you may not take out a payday loan if you already have multiple outstanding payday loans. This is in an effort to prevent predatory loan companies from permitting borrowers to borrow large amounts at extreme interest rates.
What Are The Associated Costs and Fees of a Payday Loan?
Payday loans will charge a percentage or dollar amount for every $100 borrowed; however, this fee will vary between states and between borrowers.
Rollovers – if you cannot repay your loan on the due date, and if rollovers are permitted by your state’s law, your payday lender may allow you to extend the due date of your loan. However, this in turn will incur another fee in addition to the original balance that was owed.
Repayment plans – according to some state laws, payday lenders are required to offer extended repayment plans for borrowers who are struggling to repay their payday loans. This will vary depending on the state and may or may not incur a fee. If a repayment plan is possible, this can be a better option than borrowing again and getting into a negative financial spiral.
Late fees – if you are unable to repay your loan on time, it is possible that your lender will charge you a late fee, again depending on which state you are in. If you are due to repay a loan and you have non-sufficient funds in your bank account, your bank or credit union may also hit you with a non-sufficient funds charge.