All articles 6 min read

Reading a Payday Loan’s APR, Finance Charge, and Returned-Payment Fees

This guide presents selected U.S. government consumer education from CFPB. References to “we” or “us” in the source material refer to the issuing agency. Source dates and links appear below.

What are the costs and fees for a payday loan?

In addition to the amount you borrow, payday lenders generally add a finance charge that’s a percentage or dollar amount per $100 borrowed.

The amount of this finance charge can range from $10 to $30 for every $100 borrowed, depending on your state law and the maximum amount your state permits you to borrow. A charge of $15 per $100 is common. This equates to an annual percentage rate of almost 400 percent for a two-week loan. So, for example, if you need to borrow $300 before your next payday, it will cost you $345 to pay it back, assuming a fee of $15 per $100.

Different types of costs or fees for payday loans

In addition to the finance charge, you may incur other types of fees with your payday loan:

Renewal or rollover fees

If you are unable to pay when your loan is due and your state law permits rollovers, the payday lender may allow you to pay only the fees due and then the lender extends the due date of your loan. You will then be charged another fee and still owe the entire original balance.

Using the above example, if you pay a renewal or rollover fee of $45, you will still owe the original $300 loan and another $45 finance charge when the extension is over. That’s a $90 for borrowing $300 for just four weeks.

Repayment plan fees

Some state laws require payday lenders to offer extended repayment plans to borrowers who have trouble repaying their payday loan. These laws vary by state, and may or may not permit or require a fee for using a repayment plan.

If your state requires a lender to offer an extended repayment plan, you may be able to get additional time to repay your loan without any additional costs or fees. This means that you can pay off your loan rather than borrowing again, incurring more fees, and getting further behind in debt.

If your state does not offer this, some lenders may still allow you to take an extended repayment plan, which is different than a rollover. You should ask your lender about this option if you’re having trouble paying back the loan.

Late fees

In addition, if you don’t repay the loan on time, the lender might charge a late or returned check fee, depending on state law. Your bank or credit union may also impose an “NSF” or non-sufficient funds charge if your check or electronic authorization is not paid due to a lack of funds in your account.

Prepaid debit card fees

If your loan funds are loaded onto one of these cards, there might be other fees associated with the prepaid card. For example, there may be fees to add the money to the card for checking your balance, calling customer service, or simply using the card. There may also be regular monthly fees.

Be sure to read the loan agreement carefully to spot all the fees and costs before you take out a loan.

If you experience an issue with a payday loan, you can submit a complaint to the CFPB online or by calling (855) 411-2372. You can also contact your state regulator or state attorney general.

What is an annual percentage rate (APR) and why is it higher than the interest rate for my payday loan?

The APR allows you to compare costs across different types of loan products. Your payday lender must disclose the APR before you agree to the loan.

Tip

Focus on APRs. If you want to compare the cost of a payday loan to the cost of an installment loan or a credit card, focus on the APRs.

When looking at the cost of your payday loan, using the APR allows you to get a more accurate estimate of the loan’s costs as well as compare costs across different credit products, so you can decide which one works best for your situation.

To calculate the APR, the interest rate and fees are compared to the amount you borrow and the number of days of the loan, then divided by 365 (one year). For example, if your payday lender were to charge you a $15 fee once per year for every $100 borrowed, that would be a simple interest rate of 15 percent. But if you’re required to repay the loan in two weeks, that 15-percent finance charge equates to an APR of almost 400 percent because of the very short term.

Here’s why: Consider the daily interest cost, $1.07 (or $15 divided by 14 days), then multiply that by a full year (365 days, so $390.55). So, borrowing $100 would cost you $391 if the term were extended to one year – that’s 391 percent of the borrowed amount.

By comparison, the cost of borrowing the same $100 on a credit card with a 30-percent APR is $30 for one year, or about $1.25 for two weeks.

You don’t need to worry about the math. Just keep in mind that the APR does matter because it provides a quicker way for you to compare the cost of two or more loans.

Remember, your payday lender must disclose the annual percentage rate (APR) and other costs before you agree to the loan. If you were not given this information, your lender has violated the law. You can file a complaint with your state regulator and attorney general . You can also submit a complaint to the CFPB online or by calling (855) 411-2372.

Why did my payday lender charge me a late fee or a non-sufficient funds (NSF) fee?

If you do not have enough money in your account when the lender attempts to repay itself, you could be charged additional fees.

Tip

If you have questions about any fees, charges, or how your payments have been allocated, you can request a payment history, amortization schedule, and look at your loan file.

Payday loans often include a number of potential charges or fees, including fees if your loan isn’t paid in full when it’s due. If the lender attempts to pull money from your account on the due date and you don’t have enough funds in your account to cover it, you may be charged a late fee and a returned payment fee by the lender as well as a non-sufficient funds (NSF) fee by your bank or credit union, depending on your state law and your loan agreement.

While some lenders require you to repay your loan in cash at their store, they likely required you to provide a post-dated check to the lender or an ACH or electronic transfer authorization in case the loan wasn’t repaid. If you do not have enough money in your account when the lender attempts to repay itself, your bank or credit union may cover the payment and charge you an overdraft fee. If your bank or credit union does not cover the payment, the loan will not be paid, and you might be charged a “bounced check” or NSF fee by your bank or credit union and a late fee and a returned payment fee by the lender.

Before you agree to a payday loan, review your loan agreement closely, and make sure you understand what fees the lender could charge. Your state’s laws may also restrict what fees payday lenders can be charged, including how many times you can be charged and how much.

If you experience problems with a payday loan, contact your state regulator or attorney general . You can also submit a complaint to the CFPB online or by calling (855) 411-2372.

Sources and publication details

The federal agency source text is U.S. government work in the public domain. Fynoptic selected, adapted, and formatted it for this guide. No agency endorsement is implied. Follow the linked sources for current program details and the rules applicable to your circumstances.

Back to all articles