True cost of Payday Loans

Payday Loans

Payday loans are short-term loans (usually up to two weeks).

  • You write a post-dated check and receive cash that day. The loan service cashes the check on your payday to pay the loan in full.
  • You can also go in to the loan office and pay your loan with cash, at which point the lender returns your uncashed check to you.
  • You must be careful of payday loans. They are usually made to people who need money right away and plan to pay it back with their next paycheck.
  • However, if unable or unwilling to repay the loan when it is due, many people pay more fees to get another payday loan.


Payday loans can be much more costly than they appear at first glance.

  • If you do not have the money to pay the loan within the agreed-upon time period, the lender may renew the loan and charge you additional fees.
  • This will increase the total amount you owe.
  • Let us look at an example of how payday loan services work. Assume you go to a payday lender and borrow $200:


Loan Term


You write a check for:

2 weeks




The APR estimate for this transaction is 391 percent! An APR for a typical payday loan may vary and may be even higher than this example. Most payday lenders:

  • Allow you to roll over, or renew your loan
  • Charge an additional fee for renewal; this time for $260 ($230 + $30 additional fee)
  • Are usually not federally insured financial institutions or closely monitored by the Government as banks are.


You should ask your bank or credit union for other available options. If you want to learn more about how to protect yourself, take the Money Matters, Keep It Safe, and Loan to Own modules.