How Payday Loan Interest Rates Are Calculated

Payday loan providers usually 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. This equates to an annual percentage rate of around 400% or a little less. For example, if you borrow $400, it would cost you about $460 to pay it back, assuming a fee of $15 per $100 borrowed. The interest rate is very high, but these loans are not intended to be long term loans extended over months or a year. They are short term loans. If you can afford the fee, then you should always plan to pay back your loan on time. If you do, the interest rate is not a consideration, just the fees you will be paying.

If you can’t pay back your loan when it is due, your lender may let you pay only the fees due and extend the due date of your loan. But you will be charged another fee and still owe the entire original balance. These fees vary depending on state law, and some states do not allow ‘rollovers.’ You could be subject to another $60 fee for extending your loan. That’s a $120 in fee charges for borrowing $400 for 4 weeks instead of 2. As you can see, you want to avoid rollovers.

Some states require payday lenders to offer extended repayment plans to borrowers who have trouble repaying a payday loan. These laws vary greatly by state and may or may not require a fee for using a repayment plan. Every state is different, so be sure to check your state website for details. Most lenders will answer any questions about what you can or can’t do for your loan. Be sure to do so.

One other thing, if you don’t repay your loan on time, your lender may charge a late fee depending on your state laws.