Guides

What a payday loan really costs

A payday loan is usually a short-term, high-cost loan, generally for $500 or less, that is typically due on your next payday.^[1] The due date is typically two to four weeks after the loan is made, and it is usually repaid in a single payment.^[1] To get one, you generally write a post-dated check for the full balance including fees, or let the lender debit your bank, credit union or prepaid account.^[1]

How a flat fee becomes an annual rate

Payday lenders usually charge a fee per $100 borrowed. That fee can range from $10 to $30 for every $100, depending on your state's law.^[2] A $15 fee per $100 is common.^[2]

The CFPB's own example: borrow $300 before your next payday with a $15-per-$100 fee, and it costs $345 to pay back.^[2] Because that $45 buys only about two weeks of credit, the CFPB says a typical two-week loan at $15 per $100 equates to an annual percentage rate (APR) of almost 400 percent. By comparison, it puts credit card APRs at about 12 to 30 percent (that page was last reviewed in May 2024).^[1]

Lenders must tell you the cost in writing before you sign, including the finance charge and the APR.^[3] Compare the APR, not just the fee.

Rolling over: paying a fee to wait

Renewing or "rolling over" a payday loan generally means paying a fee to delay repaying it. That fee does not reduce what you owe.^[4] In the CFPB's example, a $300 loan that costs $45 for two weeks costs $90 in fees if you roll it over once, and you still owe the $300. Roll it over several times and you can pay several hundred dollars in fees and still owe the amount you borrowed.^[4]

Some lenders set up payments assuming you only want to pay a renewal fee on the due date. To pay the loan off in full, you may need to act several days before the due date.^[5]

Repeat borrowing is common. A 2014 CFPB study of storefront payday loans found that four out of five were rolled over or renewed within 14 days.^[6] That study is more than ten years old, but it is the CFPB's own measurement.

Your state's rules matter

Many states limit or ban rollovers.^[4] Some states do not have payday lending at all, either because state law does not permit it or because lenders choose not to operate at the rates allowed there.^[1] Where it is allowed, many states cap the cost, the fees and the loan amount.^[1] See Check your state's rules.

Active-duty servicemembers and their dependents have extra protection: the federal Military Lending Act caps the Military Annual Percentage Rate at 36 percent and limits what lenders can charge for payday and other consumer loans.^[1]

Before you borrow

Payday lenders do not generally check whether you can repay the loan while also meeting your other bills.^[1] Before you borrow, look at the alternatives in our other guides: a credit union alternative loan, a payment plan with the creditor, nonprofit credit counseling and emergency help through 211.