Published 2026-08-23
Payday Loans: Why $15 per $100 Is Almost 400% a Year
The fee looks small because it is quoted per hundred dollars over two weeks. Annualised it is one of the most expensive forms of credit legally available, and the product is designed around the assumption that you will not repay it on the first attempt.
Key takeaways
- The CFPB's own figure: a typical two-week payday loan at $15 per $100 works out to an APR of almost 400%.
- The loan is generally $500 or less and due on your next payday, two to four weeks out.
- The business model depends on rollovers. Each renewal charges the fee again without reducing the principal.
- Cheaper alternatives exist for almost every situation, including at credit unions, and they are worth an hour of searching.
The short answer
A payday loan is a short-term, high-cost loan, generally for $500 or less, typically due on your next payday. You write a post-dated cheque or authorise an electronic debit for the amount plus the fee.
The fee is quoted as a flat charge — commonly $15 per $100 borrowed. Over a two-week term that is an annual percentage rate of almost 400%, and the APR is the only figure that lets you compare it with anything else.
Where the 400% comes from
The fee is not an interest rate, and that is the point of quoting it that way. Converting it into one takes a single step: work out what the same charge would cost if it repeated for a year.
- Borrow $300 for two weeks at $15 per $100. The fee is $45 and you repay $345.
- Two weeks is roughly one twenty-sixth of a year, so the same charge repeated across a year is about twenty-six times $45.
- That is why the CFPB puts the APR on a typical two-week loan at that fee at almost 400%.
| Source | Approximate cost |
|---|---|
| Payday loan at $15 per $100 | $45 |
| Credit card cash advance | A percentage fee plus interest from day one — high, and far below this |
| Credit union small-dollar loan | Capped by the federal interest ceiling on most credit union loans |
| Overdraft on a checking account | A per-item fee, repeated per transaction |
| A payment plan agreed with the biller | Often nothing |
The rollover is the product
The loan assumes your next payday will cover both the principal and the fee. For a household that was short this fortnight, it frequently does not — so the loan is renewed, and the fee is charged again on the same principal.
Two rollovers on a $300 loan cost $135 in fees while the $300 is still outstanding. Nothing has been repaid; the debt has simply been rented for six weeks.
That is the sequence the CFPB calls the debt trap, and it is not a misuse of the product. It is the pattern the pricing is built for, because a borrower who repays on the first due date generates one fee and a borrower who rolls over generates several.
What the law does and does not do
There is no federal interest rate cap on consumer loans generally. Payday lending is regulated state by state: some states cap the rate low enough that the product does not exist there, others license it with limits on the number of rollovers, and others allow it broadly.
One federal cap does exist and it is narrow. The Military Lending Act caps most consumer credit to active-duty service members and their dependants at a 36% Military Annual Percentage Rate, which is why payday lenders generally cannot lend to them at these prices.
Federal credit unions operate under their own ceiling — 15% by statute, with a temporary 18% ceiling set by the NCUA Board — which is the structural reason a credit union small-dollar loan is a different order of cost.
What to try first
In rough order of how much they cost, cheapest first. Most of these take a phone call, and the call is worth more per minute than almost anything else on this site.
- Ask the biller for a payment plan. Utilities, hospitals and landlords routinely agree one, usually at no interest.
- Ask your employer about an advance on wages already earned. Many will, and many payroll systems now support it directly.
- A credit union small-dollar loan. Some offer a specific payday alternative loan designed for this situation.
- A credit card purchase, if you have one — even at a high APR it is a fraction of this cost. A cash advance is worse than a purchase but still cheaper than a payday loan.
- Local assistance: a community action agency, a religious organisation, or the state's emergency assistance programme.
- A payday loan only after the list above has been exhausted, and only for an amount you can genuinely repay on the first due date.
Frequently asked questions
What is the actual APR on a payday loan?
The CFPB states that a typical two-week payday loan with a $15 per $100 fee equates to an APR of almost 400%. The exact figure depends on the fee and the term, and state law sets what is permitted where you live.
Can a payday lender have me arrested?
No. Failing to repay a consumer debt is not a crime, and threatening arrest over one violates the Fair Debt Collection Practices Act when a collector does it. A lender can sue you in civil court, which is a different thing.
Does a payday loan build credit?
Generally not. Most payday lenders do not report to the nationwide credit bureaus when you repay on time. They frequently do report — or sell the debt to a collector who reports — when you do not.
Can I stop the automatic debit?
You can revoke the authorisation and place a stop payment order with your bank, and the CFPB has guidance on how. Doing so does not cancel the debt, and the lender can still pursue it by other means.
Run the numbers
This guide explains the concept. These put your own figures on it.
- Emergency Fund CalculatorFind your emergency fund target and how long it takes to reach it.
- 50/30/20 Budget CalculatorSplit your income into needs, wants, and savings using the 50/30/20 rule.
- Personal Loan CalculatorCalculate your personal loan payment and APR from the amount, interest rate, fees, and term.
Free and no sign-up, on financeinyourpocket.com — our sister site.
Terms used in this guide
- Regular APR
- The yearly interest rate applied to any balance you carry past the due date, once any promotional period ends. Ranges mean the rate you get depends on your credit profile.
- Interest rate
- The yearly rate used to calculate the interest portion of your mortgage payment. On its own it tells you what the loan costs to borrow, not what it costs to get.
- Credit score
- The score range an issuer suggests for approval. It is guidance, not a guarantee: income, existing debt and your history with that bank all weigh in.
Sources
- Consumer Financial Protection Bureau — What is a payday loan?
- Consumer Financial Protection Bureau — Payday loans — consumer tools
- National Credit Union Administration — NCUA Board extends the loan interest rate ceiling to 10 September 2027
The content provided on this site is for educational and informational purposes only and does not constitute financial, legal, or tax advice.