Hong Life CalculatorsUnderstanding the payday loan calculator — concept and principle
A payday loan charges a flat fee per 100 borrowed for a short term, usually until your next payday. Quoted as a fee, the cost looks small. This calculator converts it into an annual percentage rate (APR), adds the cost of rollovers and shows how expensive the loan really is compared with other credit.
How it is calculated
- Fee = amount borrowed × fee per 100 ÷ 100; amount due = amount + fee.
- APR = fee ÷ amount × 365 ÷ days × 100.
- Each rollover pays the fee again without reducing the debt: total fees = fee × (1 + rollovers).
- Effective annual rate if renewed all year = (1 + fee ÷ amount)^(365 ÷ days) − 1.
The principle
APR expresses the cost of credit on a yearly basis so that loans of different lengths can be compared. A 15 USD fee per 100 for two weeks is 15% for 14 days; scaled to a year that is about 391%. If you keep renewing the loan and the fee is effectively added each time, the cost compounds and becomes far larger. The US Truth in Lending Act requires lenders to disclose the APR for this reason.
Worked example
Default inputs: 400 USD borrowed, 15 USD fee per 100, 14 days, no rollovers.
- Fee = 400 × 15 ÷ 100 = 60.00 USD; amount due = 460.00 USD.
- Fees as a share of the loan = 15%; days in debt = 14.
- APR = 60 ÷ 400 × 365 ÷ 14 × 100 ≈ 391.1%.
- Total fees including rollovers = 60.00 USD (none here).
- Effective annual rate if renewed all year = 1.15^(365 ÷ 14) − 1 ≈ 3,724%.
| Loan term (days) | APR (annual percentage rate) |
|---|---|
| 3.5 | 1,368.8% |
| 7 | 782.1% |
| 10.5 | 497.7% |
| 14 | 391.1% |
| 17.5 | 304.2% |
| 21 | 260.7% |
| 28 | 195.5% |
How to read the result
Compare the APR with alternatives: credit-union small-dollar loans, an employer pay advance, a payment plan with the bill issuer or even a credit card cash advance usually cost far less. Each rollover adds the full fee again, so two rollovers triple the cost while the original debt remains.
Common mistakes
- Comparing the fee percentage with an annual rate.
- Planning to roll over "just once" without budgeting for repeated fees.
- Ignoring late fees and bank charges if the lender's withdrawal fails.
- Assuming the loan is legal or has the same terms in every state.
Frequently asked questions
What is the APR on a payday loan?
With a typical 15 USD per 100 fee for two weeks, about 391%.
What happens if I cannot repay on payday?
You may be offered a rollover, which charges another fee without reducing the principal. Contact the lender and look for alternatives early.
Are payday loans legal everywhere?
No. Some US states prohibit them or cap rates, and other countries have their own rules.
Sources: Consumer Financial Protection Bureau, "What is a payday loan?" and APR examples · Federal Trade Commission, consumer guidance on payday loans