Short answer: on $500, a typical payday loan costs $75 for two weeks, which works out to an APR of about 391%. A $500 installment loan at 36% APR repaid over 6 months costs about $54 in interest in total. The payday loan gets much more expensive if it is renewed, and the CFPB found that four out of five payday loans are rolled over or renewed within two weeks (CFPB).
The two products in one minute
| Payday loan | Personal (installment) loan | |
|---|---|---|
| Typical size | $500 or less (CFPB) | Hundreds to thousands of dollars |
| Repayment | One payment, usually on your next payday, 2 to 4 weeks out (CFPB) | Fixed monthly payments over months or years |
| Price | A fee of $10 to $30 per $100; $15 per $100 is common (CFPB) | Interest stated as an APR, plus any fees |
| Allowed where? | Not offered in some states, either banned or not offered at the rates allowed (CFPB) | Allowed in every state, under state rate and licensing rules |
Worked example: borrowing $500
Assumptions: payday fee $15 per $100 for a 14 day loan; installment loans with no origination fee. APR for the payday loan: $75 / $500 x 365 / 14 = 391%. Monthly installment payment: P x r / (1 - (1 + r)-n), with r = APR / 12.
| Loan | Price | Term | Payments | Total cost | APR |
|---|---|---|---|---|---|
| Payday loan, repaid on time | $75 fee ($15 per $100) | 2 weeks | $575 once | $75 | about 391% |
| Payday loan, renewed 4 times | $75 fee each 2 weeks | 10 weeks | $75 every 2 weeks, then $575 | $375 | about 391% |
| Installment loan at 28% APR | interest only (no fee assumed) | 6 months | $90.27 a month | $41.62 | 28% |
| Installment loan at 36% APR | interest only (no fee assumed) | 6 months | $92.30 a month | $53.79 | 36% |
| Installment loan at 36% APR | interest only (no fee assumed) | 12 months | $50.23 a month | $102.77 | 36% |
The renewal row is where the cost runs away: each renewal adds another $75 fee while the $500 is still owed. The CFPB found that about 22% of new payday loans are renewed six times or more, at which point the fees paid are larger than the amount borrowed (CFPB). At $75 a time, seven fees come to $525 on a $500 loan.
Try your own numbers
Lower cost options to check first
- Payday alternative loans (PALs) from a federal credit union: PAL I loans of $200 to $1,000 over 1 to 6 months, PAL II loans up to $2,000 over up to 12 months, with an application fee of no more than $20 and an interest rate capped at 28% (NCUA). You must be a member of the credit union.
- A payment plan with the company you owe, or a short delay agreed with your landlord or utility.
- An installment loan from a lender that shows you the APR and the full repayment schedule before you sign.
Before you sign any loan
Compare offers by APR, not by the fee or the monthly payment alone: the APR includes interest and certain fees, so it is the one number that lets you compare different loans (CFPB). Check the total you will repay and what happens if you pay late. If an offer looks too good to be true, read our guide to advance-fee loan scams.
Participating lenders may be able to provide personal loans of up to $15,000, and up to $5,000 for installment loans. Not all lenders can provide these amounts, and approval is not guaranteed.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.