A typical $500 payday loan at an APR of 400% would cost you $76.71 in finance charges in two weeks — not including any additional fees.
This means that you would owe a total of $576.71 to your payday lender by your next payday. However, the cost may change depending on your APR and where you live. 📍
Learn: Where can I get a payday loan?
Some states heavily regulate payday lending and cap the APR lenders are allowed to charge at 36%; while other states have no regulation and are permitted to charge an APR as high as 782% (nearly 40 times the average APR for a credit card).
On the surface, small-dollar payday loans don't appear that pricey. This is because their cost is usually presented in the form of a (biweekly) fee — between about $10-$30 for every $100 borrowed. While this fee is still a bit steep for a small loan, if you pay back your payday loan according to schedule, it can be completely affordable.
Though, the trouble with that is, most borrowers (a whopping 80% to be exact) don't manage to repay their payday loan in two weeks.
Learn: Are payday loans hard to pay back?
Many borrowers "rollover" their payday loan multiple times, turning their old loan into a new one, which results in added fees and further accumulation of interest. It is at THIS point that the true cost of a payday loan really begins to shine.
So, let's examine what your $500 payday loan would cost you if you delayed your repayment — as most borrowers do. Sticking with our previous example of a 400% APR, if you:
- Rollover once and delay your repayment by four weeks, you'll be looking at paying $153.42 in finance charges, resulting in a total repayment amount of $653.42.
- Rollover twice and delay your repayment by six weeks, you'll be looking at paying $230.14 in finance charges, resulting in a total repayment amount of $730.14.
- Rollover thrice and delay your repayment by eight weeks, you'll be looking at paying $306.85 in finance charges, resulting in a total repayment amount of $806.85.
❗ Note: these figures DO NOT include any additional rollover, late or convenience fees, and are assuming your lender isn't compounding interest as some do (which would cost you a lot more).
Learn: How is the interest rate on a payday loan calculated?
In general, when you take out any loan, you will have to pay back more than what you borrowed. But, as you can see with a payday loan, that "more" is often astronomically more. So, if you have poor credit and need $500, I would urge you to consider the more affordable options available to you first, such as: personal installment loans, title loans or financial assistance programs.
After weighing all your options, if you still feel like a payday loan is the option for you, be sure to adjust your budget as needed to pay off your loan by your next payday.