{"id":85229,"date":"2025-01-21T02:59:44","date_gmt":"2025-01-21T10:59:44","guid":{"rendered":"https:\/\/financer.com\/?p=85229"},"modified":"2025-02-20T22:24:48","modified_gmt":"2025-02-21T06:24:48","slug":"why-payday-loan-rates-are-high","status":"publish","type":"post","link":"https:\/\/financer.com\/loans\/articles\/why-payday-loan-rates-are-high\/","title":{"rendered":"How Do the Aprs on Payday Loans Get To Be So High?"},"content":{"rendered":"\n<p><a href=\"https:\/\/financer.com\/loans\/payday-loans\/\">Payday loans<\/a> come with astronomically high annual percentage rates (APRs) that can reach 400% or more. This is largely due to their short-term nature and high fees relative to the loan amount. <\/p>\n\n\n\n<p>While a $15 fee on a $100 two-week loan may not seem like much, it translates to an APR of nearly 400% when annualized.<\/p>\n\n\n\n<p>Keep reading to understand better the universe of payday loans, including topics such as the structure of APRs, how to calculate payday loans APR rates, tips to get lower APR payday loans, and much more.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"What_Is_a_Payday_Loan\">What Is a Payday Loan<\/h2>\n\n\n\n<p>To better understand its APRs, is important to know <a href=\"https:\/\/financer.com\/loans\/payday-loans\/\">what is a payday loan<\/a>. They are are short-term, high-cost loans designed to be repaid on your next payday, what means within 2-4 weeks. Here&#8217;s how they work.<\/p>\n\n\n\n<ul>\n<li>You need quick cash, usually $500 or less.<\/li>\n\n\n\n<li>You write a post-dated check or authorize an electronic withdrawal for the loan amount plus fees.<\/li>\n\n\n\n<li>The lender gives you cash immediately.<\/li>\n\n\n\n<li>On your next payday, the lender cashes your check or withdraws the money electronically.<\/li>\n<\/ul>\n\n\n\n<p>The real trouble starts when payday arrives and you can&#8217;t repay the loan in full. Many borrowers end up taking out another loan or rolling over the current one.\u00a0This can quickly turn into a debt cycle, where you&#8217;re constantly borrowing to cover your previous loans.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"Understanding_the_APR_in_Payday_Loans\">Understanding the APR in Payday Loans<\/h2>\n\n\n\n<p>Okay, now we know what is a payday loan, so we can move forward and comprehend the APR itself. <\/p>\n\n\n\n<p><a href=\"https:\/\/financer.com\/loans\/articles\/what-is-apr\/\">The Annual Percentage Rate (APR)<\/a> represents the true cost of borrowing money over a year. It includes both the interest rate and any additional fees, giving you a clearer picture of the loan\u2019s actual cost.<\/p>\n\n\n\n<p>For payday loans, the APR is typically in the triple digits, often ranging from 300% to over 600%.<\/p>\n\n\n<div class=\"fn_block block_fn_pros_cons\"><ul class=\"check\"><h3 id=\"Why_are_payday_loans_APRs_so_high_compared_to_other_loans\">Why are payday loans APRs so high compared to other loans?<\/h3><li><p><strong>Short loan terms: <\/strong>Payday loans are usually due within 2-4 weeks. When the fee is annualized, it results in a very high APR.<\/p>\n<\/li><li><p><strong>High fees:<\/strong> Once the borrowed amount is low, the fees are proportionally high. <\/p>\n<\/li><li><p><strong>High risk: <\/strong>Payday loans are known as quick cash, so lenders often don&#8217;t check credit scores, increasing their risk and justifying higher rates.<\/p>\n<\/li><li><p><strong>Quick process:<\/strong> As long borrowers need quick cash, lenders charges high fees.<\/p>\n<\/li><li><p><strong>Limited regulation:<\/strong> Some states have few restrictions on payday loan rates. What means lenders can charge as much as they want.<\/p>\n<\/li><\/ul><\/div>\n\n\n<p>Let&#8217;s compare payday loans APRs to other forms of credit:<\/p>\n\n\n\n<figure class=\"wp-block-table is-style-fn-tables shortcode-no\"><table><thead><tr><th class=\"has-text-align-center\" data-align=\"center\">Loan Type<\/th><th class=\"has-text-align-center\" data-align=\"center\">Typical APR Range<\/th><\/tr><\/thead><tbody><tr><td class=\"has-text-align-center\" data-align=\"center\">Payday Loans<\/td><td class=\"has-text-align-center\" data-align=\"center\">300% &#8211; 664%<\/td><\/tr><tr><td class=\"has-text-align-center\" data-align=\"center\"><a href=\"https:\/\/financer.com\/credit-cards\/\">Credit Cards<\/a><\/td><td class=\"has-text-align-center\" data-align=\"center\">15% &#8211; 30%<\/td><\/tr><tr><td class=\"has-text-align-center\" data-align=\"center\"><a href=\"https:\/\/financer.com\/loans\/personal-loans\/\">Personal Loans<\/a><\/td><td class=\"has-text-align-center\" data-align=\"center\">6% &#8211; 36%<\/td><\/tr><tr><td class=\"has-text-align-center\" data-align=\"center\">Mortgages<\/td><td class=\"has-text-align-center\" data-align=\"center\">3% &#8211; 7%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>As you can see, payday loans are significantly more expensive than other credit options. They can be 20 times more expensive than personal loans, the second highest APR on this table.<\/p>\n\n\n\n\t\t<div id=\"genericloan_0_form\" class=\"fs-slider fs-slider--tooltip search-hero--bg1\"><h3>Compare loans from 45 lenders<\/h3><p>Find the cheapest rate with one click<\/p><div class=\"step amount\">    <div class=\"slider_cont step__value\">\n        <span class=\"fl_l_m_15 amount_display\"><\/span>\n    <\/div>\n    <div class=\"step__slider\">\n        <input type=\"range\" data-default-value=\"500\" data-name=\"param_amount\" \/>\n    <\/div>\n<\/div><div class=\"step stepSubmit\"><a id=\"submitSliders\" href=\"https:\/\/financer.com\/results?query=1&non_affiliate=true&param_amount=500&loan_broker_filter_active=true&param_period=360\" data-slider-url=\"https:\/\/financer.com\/results?query=1&non_affiliate=true&param_amount=500&loan_broker_filter_active=true&param_period=360\" data-required=\"results?query=1non_affiliate=true&param_amount=500&loan_broker_filter_active=true&param_period=360&\" class=\"get_results compare button is-primary is-medium is-rounded\">Compare Offers<\/a><\/div>\t\t<\/div><h2 class=\"wp-block-heading\" id=\"How_to_Calculate_Payday_Loans_Apr_Rates\">How to Calculate Payday Loans Apr Rates<\/h2>\n\n\n\n<p>Ever wondered how those sky-high payday loan rates are actually calculated? Let&#8217;s break it down in simple terms.<\/p>\n\n\n\n<p>First, you need to know three key pieces of information:<\/p>\n\n\n\n<ol>\n<li>The amount you&#8217;re borrowing<\/li>\n\n\n\n<li>The fee you&#8217;re being charged<\/li>\n\n\n\n<li>The length of the loan term<\/li>\n<\/ol>\n\n\n\n<p>Now, here&#8217;s the formula:<\/p>\n\n\n\n<p>APR = (Fee \/ Loan Amount) x (Number of Days in a Year \/ Loan Term in Days) x 100<\/p>\n\n\n\n<p>For instance, let&#8217;s say you&#8217;re borrowing $300 for 14 days with a $45 fee.<\/p>\n\n\n\n<p>APR = ($45 \/ $300) x (365 \/ 14) x 100 = 391.07%<\/p>\n\n\n\n<p>That&#8217;s means you have a 391.07% APR in a two-week loan. But wait, it gets worse. Many people can&#8217;t pay back the loan in two weeks and end up rolling it over. Let&#8217;s say if you have rolled over that loan for three months. The APR stays the same, it&#8217;s in the contract, but you&#8217;ve now paid $270 in fees on a $300 loan.<\/p>\n\n\n\n<p>That&#8217;s why we always need to consider alternatives like personal loans, credit union loans, or negotiating with creditors before turning to payday loans.<\/p>\n\n\n\n<p>On the other hand, payday loans are <a href=\"https:\/\/financer.com\/loans\/direct-lenders\/\">fast cash<\/a>. So, if you really need urgent money and are sure you can repay them, they can be an option.<\/p>\n\n\n<div class=\"fn_block block_fn_button  buttons  is-flex is-flex-direction-column is-align-items-center\"><a href=\"https:\/\/financer.com\/loans\/payday-loans\/\" class=\"button  is-rounded is-primary is-medium is-fullwidth\" target=\"_blank\"  >Check the leading lenders for payday loans<\/a><\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"State_Laws_That_Control_Payday_Loan_Interest_Rates\">State Laws That Control Payday Loan Interest Rates<\/h2>\n\n\n\n<p>When it comes to payday loan interest rates, not all states are created equal. In fact, the rules can vary wildly depending on where you live.<\/p>\n\n\n\n<p>Some states have maximum legal APR for payday loans. For example,\u00a0Colorado limits it to 129%. That&#8217;s still high, but it&#8217;s a far cry from the 664% you might see in Texas!<\/p>\n\n\n\n<p>However, other states don&#8217;t have any limits at all. In these places, lenders can charge whatever they want. Here&#8217;s a quick breakdown of how states handle payday loan rates:<\/p>\n\n\n\n<ol>\n<li><strong>18 states plus D.C.<\/strong> have effectively banned payday loans by capping rates at 36% or lower.<\/li>\n\n\n\n<li><strong>32 states<\/strong>\u00a0allow payday lending with varying degrees of regulation.<\/li>\n\n\n\n<li><strong>6 states<\/strong>\u00a0have no rate cap at all.<\/li>\n<\/ol>\n\n\n\n<p>You can check the maximum legal APR for payday loans in your state on the <a href=\"https:\/\/www.ncsl.org\/financial-services\/payday-lending-state-statutes\" target=\"_blank\" rel=\"noreferrer noopener\">National Conference of State Legislatures website<\/a>.<\/p>\n\n\n\n<p>It&#8217;s worth noting that even in states with rate caps, payday lenders often find loopholes. They might offer products that technically aren&#8217;t &#8220;payday loans&#8221; to skirt the rules.<\/p>\n\n\n\n<p>The bottom line? Don&#8217;t assume your state is protecting you from sky-high rates, even with maximum legal APR for payday loans. Always do your homework and calculate the APR before signing on the dotted line.<\/p>\n\n\n<div class=\"fn_block block_fn_button  buttons  is-flex is-flex-direction-column is-align-items-center\"><a href=\"https:\/\/financer.com\/loans\/payday-loans\/\" class=\"button  is-rounded is-primary is-medium is-fullwidth\" target=\"_blank\"  >Find reputable lenders in your state<\/a><\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"Tips_To_Get_Lower_APR_Payday_Loans\">Tips To Get Lower APR Payday Loans<\/h2>\n\n\n\n<p>While payday loans are notorious for their high APRs, there are ways to potentially lower your costs. Here are some tips to help you secure a more affordable payday loan.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Use_Financers_Loan_Finder_Tool\">Use Financer&#8217;s Loan Finder Tool<\/h3>\n\n\n\n<p>The best way to find lower APR payday loans is to use\u00a0<a href=\"https:\/\/financer.com\/loans\/\" target=\"_blank\" rel=\"noreferrer noopener\">Financer&#8217;s Loan Finder tool<\/a>. This free tool allows you to compare multiple lenders side by side, making it easy to spot the best deals.<\/p>\n\n\n\n<p>By using the Loan Finder, you can save both time and money. Instead of applying to multiple lenders individually, you can see all your options in one place.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Improve_Your_Credit_Score\">Improve Your Credit Score<\/h3>\n\n\n\n<p>Your <a href=\"https:\/\/financer.com\/personal-finance\/articles\/what-is-a-good-credit-score\/\" data-type=\"link\" data-id=\"https:\/\/financer.com\/personal-finance\/articles\/what-is-a-good-credit-score\/\" target=\"_blank\" rel=\"noreferrer noopener\">credit score<\/a> plays a big role in determining your loan terms. While many payday lenders don&#8217;t check credit, some do, and a better score can lead to better rates.<\/p>\n\n\n\n<p>Start by checking your credit report for errors and disputing any inaccuracies. Then, focus on paying bills on time and reducing your credit utilization.\u00a0Even a small improvement in your credit score can lead to significant savings on loan interest.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Borrow_Only_What_You_Need\">Borrow Only What You Need<\/h3>\n\n\n\n<p>The more you borrow, the more you&#8217;ll pay in interest and fees. Always borrow only what you absolutely need, not what the lender offers.<\/p>\n\n\n\n<p>Make a budget to determine the minimum amount you need to cover your emergency expenses.\u00a0Borrowing even $50 less can make a significant difference in the total cost of your loan.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Consider_a_Credit_Union_Payday_Alternative_Loan_PAL\">Consider a Credit Union Payday Alternative Loan (PAL)<\/h3>\n\n\n\n<p>Credit unions offer Payday Alternative Loans (PALs) that cap interest rates at 28% APR. That&#8217;s a far cry from the typical payday loan rates that can reach 400% or more.<\/p>\n\n\n\n<p>To qualify for a PAL, you&#8217;ll need to be a member of a credit union. However, many <a href=\"https:\/\/financer.com\/personal-finance\/articles\/credit-union-vs-bank\/#Credit_Unions\" data-type=\"link\" data-id=\"https:\/\/financer.com\/personal-finance\/articles\/credit-union-vs-bank\/#Credit_Unions\" target=\"_blank\" rel=\"noreferrer noopener\">credit unions<\/a> have relaxed their membership requirements, making it easier than ever to join.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Negotiate_With_The_Lender\">Negotiate With The Lender<\/h3>\n\n\n\n<p>Don&#8217;t be afraid to negotiate with payday lenders. While they may not budge on their standard rates, some may be willing to lower fees or extend repayment terms, which can effectively lower your APR.<\/p>\n\n\n\n<p>Remember, lenders want your business. If you&#8217;ve found a better offer elsewhere, let them know. They might be willing to match or beat it to keep you as a customer.<\/p>\n\n\n\n                <div class=\"fn_block block_fn_msg_box cost search-hero--bg1\">\n\t\t\t\t<h3>How to save <span class=\"compare-amount\">$1,190.00 <\/span> on your loan<\/h3>\n\t\t\t\t<p>The price difference for a $500.00 loan in 90 days is $1,190.00.<\/p>\n\t\t\t\t<p class=\"has-text-left\"><a href=\"https:\/\/financer.com\/results\/?query=1&filter_non_affiliate=1&param_amount=500&param_period=90\" class=\"button is-normal is-primary is-rounded\">Find out how<\/a><\/p>\n                <\/div><h2 class=\"wp-block-heading\" id=\"Alternatives_To_High_APR_Payday_Loans\">Alternatives To High APR Payday Loans<\/h2>\n\n\n\n<p>Before you commit to a high-cost payday loan, consider these alternatives that could save you a bundle.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Personal_Loans\">Personal Loans<\/h3>\n\n\n\n<p>With APRs typically ranging from 6% to 36%, <a href=\"https:\/\/financer.com\/loans\/personal-loans\/\">personal loans<\/a> are often much cheaper than payday loans. They also offer longer repayment terms, making them easier to manage.<\/p>\n\n\n\n<p>You can use <a href=\"https:\/\/financer.com\/results\/\">LoanFinder\u2122\ufe0f<\/a> to compare the best personal loans we analyzed. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Credit_Card_Cash_Advances\">Credit Card Cash Advances<\/h3>\n\n\n\n<p>While not ideal, <a href=\"https:\/\/financer.com\/credit-cards\/\">credit card cash advances<\/a> usually have lower APRs than payday loans. Just be sure to pay it back as quickly as possible to minimize interest charges. <\/p>\n\n\n\n<p>Remember, most of the time there&#8217;s no grace period and interest starts accruing immediately.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Payday_Alternative_Loans_PALs\"><strong>Payday Alternative Loans (PALs)<\/strong><\/h3>\n\n\n\n<p>As mentioned earlier, <a href=\"https:\/\/financer.com\/loans\/credit-union-loans\/\">credit unions<\/a> offer these as a safer alternative to payday loans. PALs cap interest rates at 28% APR and give you up to 12 months to repay. <\/p>\n\n\n\n<p>To qualify, you typically need to be a credit union member for at least a month, so consider joining one in advance if you might need this option in the future..<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"Borrowing_from_Friends_or_Family\">Borrowing from Friends or Family<\/h3>\n\n\n\n<p>This can be tricky, but is often the cheapest option. Just be sure to treat it like a formal loan with clear terms to avoid damaging relationships.<\/p>\n\n\n\n<p><a href=\"https:\/\/www.pewtrusts.org\/en\/research-and-analysis\/articles\/2023\/06\/07\/what-does-the-research-say-about-payday-loans\" target=\"_blank\" rel=\"noreferrer noopener\">According to the Pew Charitable Trusts<\/a>, the average payday loan borrower spends $520 in fees to repeatedly borrow $375. By exploring alternatives and using tools like Financer&#8217;s Loan Finder, you can avoid this debt trap and keep more money in your pocket.<\/p>\n\n\n\n<p>Always compare your options before committing to any loan. With Financer&#8217;s Loan Finder, you can quickly see which lenders offer the best rates and terms for your situation. Don&#8217;t let a financial emergency push you into a costly payday loan when better alternatives are just <a href=\"https:\/\/financer.com\/results\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>a click away<\/strong><\/a>.<\/p>\n\n\n<div class=\"fn_block block_fn_faq_list\"><h3 id=\"Payday_Loans_APRs_FAQs\">Payday Loans APRs FAQs<\/h3><h4>How do the annual percentage rates (Aprs) on payday loans get to be so high?<\/h4><div class=\"faq_inner\"><p><span style=\"font-weight: 400;\">Payday loan APRs skyrocket due to their short-term nature and high fees. A typical $15 fee per $100 borrowed for two weeks translates to a 391% APR. Lenders justify these rates citing high default risks and operational costs. The combination of small loan amounts, brief repayment periods, and flat fees results in astronomical APRs when annualized, often exceeding 400%.<\/span><\/p><\/div><h4>What factors contribute to sky-high Aprs on payday loans?<\/h4><div class=\"faq_inner\"><p><span style=\"font-weight: 400;\">Several factors drive up payday loan APRs: short loan terms, high operational costs, and elevated default risks contribute to inflated rates. Lenders also exploit financial desperation and lack of alternatives.<\/span><\/p><\/div><h4>Are there legal limits on payday loan APRs in different states?<\/h4><div class=\"faq_inner\"><p><span style=\"font-weight: 400;\">Payday loan APR limits vary significantly by state. 18 states and Washington D.C. effectively have banned payday loans. Others have varying restrictions, while some impose no limits. For instance, California caps payday loan APRs at 460%, while Texas allows rates over 600%.<\/span><\/p><\/div><h4>What alternatives exist to high-APR payday loans?<\/h4><div class=\"faq_inner\"><p><span style=\"font-weight: 400;\">Alternatives to high-APR payday loans include personal loans and credit union Payday Alternative Loans (PALs), for example. The best option is always search in the Financer&#8217;s Loan Finder. Borrowing from family or friends, negotiating with creditors, or seeking assistance from local charities can also provide lower-cost options.<\/span><\/p><\/div><h4>What is a payday loan?<\/h4><div class=\"faq_inner\"><p><span style=\"font-weight: 400;\">A payday loan is a short-term, high-cost loan typically due on the borrower&#8217;s next payday. These loans usually range from $100 to $500 and carry fees of $10 to $30 per $100 borrowed. Borrowers provide a post-dated check or electronic access to their bank account for repayment.<\/span><\/p><\/div><\/div>","protected":false},"excerpt":{"rendered":"<p>Payday loans come with astronomically high annual percentage rates (APRs) that can reach 400% or more. This is largely due\u2026 <\/p>\n","protected":false},"author":41391,"featured_media":82204,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"disable_branded_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ep_exclude_from_search":false,"footnotes":""},"categories":[1076],"tags":[],"_links":{"self":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/posts\/85229"}],"collection":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/users\/41391"}],"replies":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/comments?post=85229"}],"version-history":[{"count":49,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/posts\/85229\/revisions"}],"predecessor-version":[{"id":86282,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/posts\/85229\/revisions\/86282"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/media\/82204"}],"wp:attachment":[{"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/media?parent=85229"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/categories?post=85229"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financer.com\/wp-json\/wp\/v2\/tags?post=85229"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}