How Much Does a Payday Loan Cost on Average?

Measuring How Costly a Payday Loan Is

A payday loan is a short-term small-dollar loan that is used to address emergency cash need and is supposed to be paid off by the next payday. Since it is a better alternative than any other monetary solution, a payday cash advance is costlier than those others. In that regard, it is quite understood. However, what are the elements that are associated with a payday loan that make it costly? What is the average cost of a payday loan?

According to the Consumer Financial Protection Bureau, people borrow payday advances from $200 to $1,000. They also depend on the state laws; especially how much can be borrowed. The cost of such loans, usually, depends on the fees and interest that one pays.

There are different lenders that charge differently on the same amount of loan. However, the formula upon they charge remains the same. For example, if you have borrowed $200, and you pay $30 as APR (interest + fees) on the principal, you would pay $230. Here it cost you $30. Apart from that, there could be additional charges if you didn’t pay back on due.

Elements That Determine the Cost of a Payday Loan

• Amount Borrowed: If the borrowed amount is higher, naturally the same rate would cost more. If a $100 principal with 400% APR costs $15, for $200 principal it would cost $30.
• APR: Annual percentage rate is the sum of interest amount and the additional fees per year. When the payday loan is taken for a month, it is calculated accordingly. The state might put a maximum limit on APR, but the lenders compete to give borrowers a lower rate. The difference is not that significant, though.
• Late Payment Fee: If you do not make payments on due, that would cost you extra. Usually, there is a $10 penalty the financial companies take. That adds to the cost of the loan too.
• Prepayment Fee: Although most lenders do not charge a prepayment fee if you pay off the loan well before the due, there might be some lenders who charge for this.
• Rollover: If you cannot pay back the loan on due and requested an extension from the lender, it would cost you further. This amount also counts when you calculate the total cost of a payday loan.

Therefore, the best way to keep the cost of a payday loan low is to pay back on due. That way, you also can calculate in a simple way how much that payday loan would cost.