What this calculator does
Payday loans are usually priced as a flat fee or a percentage of the amount borrowed, rather than as a yearly interest rate the way most other loans are. A typical example is a fee of $45 to borrow $300 for two weeks. That fee looks small next to a bank loan's interest rate, but the term is so short that the same fee, restated as a yearly rate, is often several hundred percent.
This calculator takes the amount borrowed, the fee and the loan term and works out two things: the total amount that has to be repaid, and the effective annual percentage rate (APR) that fee represents. Seeing the APR figure is the point of the exercise, since it puts a short-term payday loan on the same scale as any other form of credit for comparison.
The formula
The fee is either a flat dollar amount or a percentage of the amount borrowed, entered as whichever the lender quotes. Total repayment is the amount borrowed plus that fee. The effective APR restates the fee as a yearly rate: divide the fee by the amount borrowed to get the cost as a fraction, then scale that fraction up from the loan term to a full 365-day year.
| Term | Meaning |
|---|---|
| Fee | What the lender charges for the loan, either a flat dollar figure or a percentage of the amount borrowed. |
| Total repayment | The amount borrowed plus the fee, due at the end of the term. |
| Effective APR | The fee restated as an annual percentage rate, so it can be compared with the interest rate on any other form of credit. |
The inputs explained
| Field | What to enter |
|---|---|
| Amount borrowed ($) | How much is being borrowed. |
| Fee is charged as | Whether the lender's fee is a fixed dollar amount or a percentage of the amount borrowed. |
| Fee charged ($ or %) | The fee itself, in dollars or as a percentage depending on the choice above. |
| Loan term (days) | How many days until the loan and fee are due to be repaid. |
When to use it
Understanding what a loan actually costs
A fee quoted in dollars, on its own, does not say much about whether a loan is expensive relative to its term. Converting it to an effective APR shows the true annual cost, which is the same basis used to price every other kind of credit.
Comparing a payday loan against other short-term options
A credit card cash advance, an overdraft or a short personal loan can all be compared on the same effective APR basis as a payday loan, once each is converted to the same yearly figure.
Seeing how much the term matters
The same dollar fee produces a much higher effective APR on a shorter loan term, because that fee is being charged for a smaller slice of the year. Extending the term, where that is an option, lowers the effective APR for the same fee.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How does the fee affect the total cost and effective APR?
The same $300 loan over the same 14-day term, at a range of flat dollar fees.
| Fee charged | Total repayment | Effective APR |
|---|---|---|
| $15 | $315.00 | 130.4% |
| $30 | $330.00 | 260.7% |
| $45 | $345.00 | 391.1% |
| $60 | $360.00 | 521.4% |
| $75 | $375.00 | 651.8% |
| $90 | $390.00 | 782.1% |
Questions
Why is the effective APR so much higher than the interest rate on a normal loan?
It is not that the fee itself is unusual, it is that payday loans run for a very short term, often two to four weeks. A fee that would be modest over a year becomes very large once it is scaled up from two weeks to a full year, which is exactly what an APR figure does.
Is the effective APR actually charged, or just a comparison figure?
It is a comparison figure. Nobody pays that rate for a full year on a payday loan, since the loan itself only runs for the stated term. The APR exists purely so the cost of this loan can be compared fairly against loans priced with a yearly interest rate.
What if the loan is rolled over or extended?
Rolling a payday loan over usually means paying a new fee for a new term on the same or a larger balance, which compounds the cost quickly. This calculator only prices a single term; a rollover should be treated as a separate new loan with its own fee and term entered.
Are there cheaper alternatives worth checking first?
Often, yes. Options such as a credit union loan, an employer pay advance, a payment plan with the biller directly, or a hardship arrangement can cost markedly less than a payday loan's effective APR. It is worth checking those before borrowing, and a financial counsellor can help if repayment is already a struggle.
To compare this against a longer-term personal loan's true cost, see the Loan Payment Calculator. For the cost of carrying a credit card balance instead, see the APR to Effective Rate (APY) Calculator.