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What are the costs and fees for a payday loan?

Payday loans are short-term, high-cost loans that are typically due on the borrower's next payday. While these loans can provide quick access to cash for those in need, it is crucial to understand the associated costs and fees before taking out a payday loan, as they can quickly add up and lead to a cycle of debt.

Key Takeaways

Payday loans are high-cost, short-term loans with APRs around 400%. Loan rollovers can lead to a cycle of debt. Borrowers should understand all fees and consider alternatives such as borrowing from friends, payroll advances, or credit unions. Defaulting can have serious consequences. Legislation aims to regulate the industry and protect borrowers. Before getting a payday loan, explore alternatives and seek financial guidance.

Typical cost of payday loans

Payday lenders usually charge a fee of $10 to $30 for every $100 borrowed. This may not seem like a significant amount initially, but it equates to an annual percentage rate (APR) of nearly 400% for a two-week loan. To put this into perspective, if you need to borrow $300 before your next payday, you would have to pay back $345, assuming a fee of $15 per $100 borrowed.

Here's a more detailed breakdown of the costs associated with payday loans: Payday loans generally charge a percentage or dollar amount per $100 borrowed. The amount of this fee might range from $10 to $30 for every $100 borrowed, depending on your state law and the maximum amount your state permits you to borrow. A fee of $15 per $100 is common. This equates to an annual percentage rate of almost 400% for a two-week loan. So, for example, if you need to borrow $300 before your next payday, it would cost you $345 to pay it back, assuming a fee of $15 per $100.

Borrowing Option Amount Borrowed Fee/Interest Repayment Period Total Repayment Comments
Payday Loan $300 $45 2 weeks $345 High fees and potential for rollovers
Credit Card $300 $6 (20% APR) 1 month $306 Lower interest, flexible repayment terms
Personal Loan $300 $5 (10% APR) 1 month $305 Lower interest, fixed repayment schedule
Borrow from Family/Friend $300 $0 Negotiable $300 No fees, flexible terms
Credit Union Loan $300 $3 (12% APR) 1 month $303 Lower interest, member benefits

Comparing the Cost of Payday Loans with Alternative Borrowing Options

Loan rollovers

In some states, payday lenders are allowed to "roll over" loans if the borrower is unable to pay back the loan on the due date. When this happens, the borrower pays only the fees due, and the lender extends the loan's due date. However, the borrower is then charged another fee and still owes the entire original balance. Using the previous example, if you pay a rollover fee of $45, you would still owe the original $300 loan plus another $45 fee when the extension period ends. This means you would have paid $90 in fees for borrowing $300 for just four weeks.

Repayment plans

Some states require payday lenders to offer extended repayment plans to borrowers who experience difficulty in repaying their loans. The specifics of these plans vary by state and may or may not include additional fees. If your state mandates that lenders offer an extended repayment plan, you might be able to get more time to pay off your loan without incurring extra costs. This can help you pay off the loan rather than getting caught in a cycle of borrowing, accumulating more fees, and falling further into debt.

Late fees and other charges

In addition to the high interest rates, payday lenders may also charge late fees or returned check fees if you fail to repay the loan on time, depending on state regulations. Your bank or credit union might also impose "non-sufficient funds" (NSF) charges if there is not enough money in your account to cover the repayment.

Moreover, if the loan funds are loaded onto a prepaid debit card, there may be additional fees associated with the card. These can include charges for adding money to the card, checking your balance, calling customer service, using the card for purchases, and/or monthly maintenance fees.

Accumulating Fees of Payday Loans Over Time

The importance of reading the loan agreement carefully

Before taking out a payday loan, it is essential to carefully review the loan agreement to identify all the fees and costs associated with the loan. If you have questions about your state's laws regarding payday loans, you can find more information on your state regulator's or state attorney general's website.


In summary, payday loans can be an exceptionally expensive form of borrowing due to the high fees and interest rates associated with them. It is crucial for borrowers to understand all the potential costs and fees before taking out a payday loan, as these can quickly add up and trap borrowers in a cycle of debt. By carefully reviewing the loan agreement and seeking alternative options when possible, borrowers can make more informed decisions about their financial well-being.

Frequently Asked Questions (FAQ)

Are payday loans legal in all states? 

No, payday loans are not legal in all states. Some states have banned payday lending entirely, while others have introduced regulations to limit interest rates, fees, and loan amounts. It's essential to check your state's laws before considering a payday loan.

Can I get a payday loan if I have bad credit?

Yes, most payday lenders do not perform a traditional credit check, making it possible for people with bad credit to obtain a payday loan. However, payday loans come with high interest rates and fees, which can make them difficult to repay and lead to a cycle of debt.

How quickly can I receive funds from a payday loan? 

Payday loans are designed to provide quick access to cash. In many cases, you can receive the funds on the same day you apply, either in cash or deposited directly into your bank account.

What happens if I can't repay my payday loan on time?

If you can't repay your payday loan on time, you may be charged late fees and additional interest. Some lenders may allow you to roll over the loan, extending the due date but also adding more fees and interest to the amount you owe. Defaulting on a payday loan can lead to serious consequences, such as damage to your credit score and potential legal action from the lender.

Are there any alternatives to payday loans? 

Yes, there are several alternatives to payday loans that may be less expensive and less risky. These include borrowing from friends or family, seeking a payroll advance from your employer, using a credit card, seeking assistance from local charities or social services, and obtaining a small short-term loan from a credit union or local bank. It's important to explore these options and compare the costs and terms before deciding on a payday loan.

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