Why is a payday loan 400% APR?

APR annualizes the fee: $15 per $100 for 14 days is 15% per two weeks, and there are 26 of those periods in a year — 15% × 26 ≈ 391%. The fee structure hides what an interest rate would say out loud.

What happens if you can't repay a payday loan?

The lender offers a rollover — a new fee, same principal. Most borrowers roll over repeatedly; fees can exceed the original loan within months while the debt itself never shrinks. Several states ban rollovers for exactly this reason.

What are cheaper alternatives to payday loans?

Credit-union Payday Alternative Loans (PALs, 28% APR cap, fees under $20), payment plans from the biller you owe, employer paycheck advances, 0% APR credit-card intro periods if you qualify, and local assistance programs for utilities and rent. All are dramatically cheaper than 391%.

Are payday loans legal in every state?

No. Around a third of states effectively ban them through 36% APR caps, and others restrict rollovers and loan sizes. Where they're unrestricted, the 391%+ structure in this calculator is the norm.

Payday Loan True Cost Calculator — What 391% APR Really Means (2026)

Amount borrowed

Fee per $100

Loan period

days

Rollovers / renewals

times

The loan, line by line

The rollover spiral — $500 at $15 per $100, every 2 weeks

The fee repeats; the principal never shrinks. That is the entire business model.

What happens	Fees paid	You still owe
Repaid on time	$75	$0
1 rollover (4 weeks)	$150	$500
3 rollovers (8 weeks)	$300	$500
6 rollovers (14 weeks)	$525	$500
10 rollovers (22 weeks)	$825	$500

Cheaper exits, in order

Common questions

Why is a payday loan 400% APR?: APR annualizes the fee: $15 per $100 for 14 days is 15% per two weeks, and there are 26 of those periods in a year — 15% × 26 ≈ 391%. The fee structure hides what an interest rate would say out loud.
What happens if you can't repay a payday loan?: The lender offers a rollover — a new fee, same principal. Most borrowers roll over repeatedly; fees can exceed the original loan within months while the debt itself never shrinks. Several states ban rollovers for exactly this reason.
What are cheaper alternatives to payday loans?: Credit-union Payday Alternative Loans (PALs, 28% APR cap, fees under $20), payment plans from the biller you owe, employer paycheck advances, 0% APR credit-card intro periods if you qualify, and local assistance programs for utilities and rent. All are dramatically cheaper than 391%.
Are payday loans legal in every state?: No. Around a third of states effectively ban them through 36% APR caps, and others restrict rollovers and loan sizes. Where they're unrestricted, the 391%+ structure in this calculator is the norm.

How we calculate

What is included

Fee-to-APR conversion ((fee ÷ principal) ÷ (days ÷ 365)), the rollover spiral (fee re-charged per period, principal untouched), and comparisons against a 28% PAL and a 25% credit card for the same amount and duration.

Sources: CFPB on payday loan costs · NCUA on PALs.

What is estimated or left out

State-specific caps, database rules and cooling-off periods aren't modeled. Some lenders structure fees differently (per-period interest vs flat fee). The PAL comparison assumes qualification at a federal credit union. This is education, not a loan offer.

The formula, in plain words

APR        = (fee ÷ principal) ÷ (days ÷ 365) × 100
rollover k = total fees = fee × (k + 1) · principal unchanged
PAL total  ≈ principal × 28% × days ÷ 365 + principal

The Payday Loan, Priced Honestly

The loan, line by line

The rollover spiral — $500 at $15 per $100, every 2 weeks

Cheaper exits, in order

Common questions

How we calculate

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