Payday Loan Cost Calculator
Use this tool to calculate the high cost of short-term payday loans. By entering your loan amount and term, you can see the impact of a typical 400% APR on your total repayment.
Repayment Summary
Understanding the True Cost of Payday Loans
Short-term credit, commonly known as payday loans, serves as a high-interest financial bridge for those facing unexpected expenses. However, the convenience comes at a steep price. Most payday loans carry an Annual Percentage Rate (APR) hovering around 400%, which is significantly higher than traditional credit cards or personal loans.
How Does the Payday Loan Calculator Work?
The calculator uses the standard APR formula adjusted for daily interest. Unlike a monthly mortgage, payday loans accrue interest rapidly. The formula used is: Total Interest = (Principal × APR / 365) × Days. By inputting your loan amount and the number of days until your next paycheck, the tool visualizes exactly how much profit the lender makes in just a few weeks.
Why 400% APR is the Standard
Lenders justify these rates by citing the high risk of default and the administrative costs of small-dollar lending. For a typical $15 fee per $100 borrowed over two weeks, the math translates to roughly 391% APR. If you fail to pay on time, additional "rollover fees" can cause the debt to balloon, often exceeding the original amount borrowed within months.
The Debt Trap: Rollovers and Fees
The most dangerous aspect of these loans is the rollover. When a borrower cannot repay the full amount plus interest by the due date, they may pay a fee to delay the payment. This does not reduce the principal; it only buys time while more interest accumulates. Statistics show that the average payday loan borrower is in debt for five months of the year.
Strategies to Avoid High-Interest Debt
- Emergency Savings: Even a $500 buffer can prevent the need for a payday loan.
- Credit Union Alternatives: Many credit unions offer PALs (Payday Alternative Loans) with capped interest rates.
- Payment Plans: Contact utility companies or landlords to request a payment extension.
- Side Gigs: Short-term freelance work can often bridge the gap faster than a loan.
Legal Regulations and Consumer Protection
Many states and countries have begun capping APR at 36% to protect consumers. Before signing a contract, ensure the lender is licensed in your jurisdiction and check for hidden fees that might not be included in the advertised APR.
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