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Payday Loan APRs: Real-life Comparisons

Like all lenders, payday lenders are required to disclose their fees with an APR to show potential borrowers how much the loan would cost if paid over an entire year. This leads to criticism that payday loans carry exorbitant interest rates. However, APR on a payday loan is not completely reliable because most payday loans have just a two-week lifespan. In fact, most people liken the the interest to a convenience fee. What if we gave other convenience fees an APR? The results might surprise you.

Setting the Standard
Let’s start off with a payday loan. Typically, lenders charge around $15 for every $100 borrowed. So say you take out a $100 payday loan for two weeks with a $15 charge. The $15 is considered interest on the loan, so when you calculate that rate as an APR, it comes to 391%. That sounds like a lot, doesn’t it? Let’s see how other types of fees we get charged in our everyday lives stack up against the payday loan.

Giving Everyday Fees an APR
Using the same calculation as above, we’ve determined the APR for fees we encounter every day, using the payday loan’s two-week repayment period and a consistent $100 loan for each transaction. Want to compare your own statistics?

Check out this APR calculator if you’d like to test out some of your own examples.

Overdraft fees
Americans pay over $30 billion in bank overdraft fees every year, with the average charge costing $30. Say you overdraw your account by $100 and then have to pay the $30 fee. Your APR on the transaction? 782%. Bounced checks average a fee of $30.42 and will carry the same APR.

Credit card late fees
Did you miss your last credit card payment? With the maximum late fee capped at $25, you’re looking at an APR of 652%.

Utility reconnect fees
If you’ve ever had your power turned off because of missed payments, then you know how hefty reconnect fees can be. To get reconnected outside of business hours, utility companies charge around $87. The APR? A whopping 2,268%.

Payday loans aren’t right for everyone, but they are extremely helpful when you’re in a crunch. Rather than worrying about an APR that isn’t relevant, compare lenders based on their fees for the actual repayment period, rather than a full year.


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