Question 1

How is payday-loan APR calculated?

Accepted Answer

APR = (fee ÷ principal) × (365 ÷ term in days) × 100. A $15 fee on a $100 loan due in 14 days works out to 391% APR — even though the dollar fee looks small.

Question 2

Why is the APR so high?

Accepted Answer

Payday loans are very short. The same $15 finance charge paid back in 2 weeks is much more expensive per year than the same charge on a one-year installment loan.

Question 3

What does a rollover cost?

Accepted Answer

Each rollover usually charges the same finance fee again without reducing the principal. Two rollovers on a $300 loan at $15 per $100 turns a $345 obligation into $435 — without paying down a cent of principal.

Question 4

Are there safer alternatives?

Accepted Answer

Yes — credit-union Payday Alternative Loans (capped at 28% APR), earned-wage apps like EarnIn or Dave, and bad-credit installment lenders like Possible Finance or OppLoans.

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