Are Payday Loans Fixed or Variable? (What You Need to Know)

Payday loans are a notoriously expensive form of borrowing. But their Annual Percentage Rate (APR) is often unclear. That’s because many payday lenders express their costs as a flat fee instead of an interest rate. This often leaves borrowers confused about the type of loan they’ve just gotten.

Stuck in payday debt?

DebtHammer may be able to help.

Key points

  • Payday loans have fixed interest rates
  • Payday loan interest rates are usually presented in the form of fees rather than annual percentage rates
  • Fixed interest rates don’t change over the life of the loan, which is only two weeks for payday loans

Payday loan interest rates are fixed

Payday loan rates are considered fixed because repayment is expected to be one lump sum payment just a few weeks from the date the loan was issued. The federal Truth in Lending Act also requires payday lenders to specify all finance charges you’ll pay for your loan.

The lender has no right to add fees that weren’t included in the contract, though some predatory lenders may try to bend that rule.

READ MORE: Payday loan interest rates

Pro tip: Payday lenders technically don’t charge interest. Instead, they charge fees, usually around $15 for each $100 borrowed. This tricks users into thinking the loans are low-cost when they’re actually extremely expensive. Paying a $15 fee to borrow $100 for 14 days equates to an annual percentage rate of 391%.

Fixed vs. variable loan rates: What’s the difference?

There are two types of loan rates:

  • Fixed: The interest rate locks at the beginning of the loan with no option to increase or decrease. Examples of fixed-rate loans include car loans, federal student loans, personal loans and fixed-rate mortgages.
  • Variable: The interest rate can fluctuate during the repayment term, depending on various factors. Variable-rate loans include credit cards and adjustable-rate mortgage loans.

Fixed and variable interest rates can both be risky to the borrower, but variable ones are the bigger gamble. Fixed-rate loans can only cause the borrower to miss out on potential savings. Variable-rate loans might jump up in price unexpectedly.

Pro tip: Occasionally, variable rates can work out in your favor. If you’re shopping for a home at a time when mortgage interest rates are at historic highs, it could sometimes be worth the gamble that rates will eventually start to decrease again. However, this type of gamble will only work with an extremely long-term loan. You should consult a mortgage broker to discuss whether it’s worth considering a variable rate.

READ MORE: How to pay off multiple payday loans

Lenders would prefer to have the ability to raise their rates, especially on long-term loans. They’ll usually give better terms, including a lower initial rate, in exchange for that flexibility.

That means that fixed loans usually start at a higher rate than their variable counterparts.

READ MORE: Payday loans vs. installment loans — which is better?

Payday loan interest rates are very high

Despite fixed interest rates, repaying your loan from your next paycheck isn’t always easy. More than 80% roll over payday loans into a new loan. Failure to repay a payday loan as scheduled will always lead to additional charges. Payday lenders punish borrowers who default with penalties, late charges, and even overdraft fees while attempting to collect. More than 90% of payday loan borrowers regretted their payday loan.

Payday loans are not affordable. Despite fixed interest rates, payday loan costs quickly get out of hand when a borrower defaults.

READ MORE: How to get out of payday loan debt in eight easy steps

Pro tip: The sheer cost of borrowing makes paying back payday loans on time difficult. The average payday loan in 2020 had a $375 principal balance. It costs as much as $75, an APR of 521%. For context, the average credit card had an APR of just 15% in 2020. These loans are repaid from your next paycheck, making it extremely difficult to repay, particularly when you’re already short on cash.

READ MORE: Does the government help with payday loans?

The payday loan debt trap

Payday loans are short-term, extremely high-cost loans. They have relatively small principal balances, with many states limiting their size to $500 or less.

Borrowers must usually pay back their original balance, plus the lender’s fee, two to four weeks later, by their next payday. If they fail to do so, the lender can often debit the borrower’s bank account directly or cash in a post-dated check.

READ MORE: What happens if you close your bank account and default on a payday loan?

Pro tip: Usually, payday lenders don’t report their associated activities to credit bureaus. That means that while they’re accessible with bad credit, borrowers usually can’t use them to rebuild their credit scores.

Payday loans are heavily regulated in some states and illegal in others.

Payday loans tend to have much lower-than-average qualification requirements. Lenders market them as a way to make ends meet for people with bad credit scores or limited credit history.

READ MORE: Payday loan pros and cons

Who qualifies for payday loans?

Qualifications are notoriously lenient. You’ll be expected to have a full-time job to be approved for a payday loan. Most lenders also expect you to have a checking account.

READ MORE: Practical payday loan alternatives

Reasons your payday loan may be denied

The following people are likely to have their applications for a traditional payday loan denied:

  • If you’ve been employed for less than two months
  • You’re on a temporary furlough or layoff
  • You’re collecting unemployment
  • Are working part-time
  • Are on disability
  • If your employer has stopped offering health benefits

READ MORE: Good debt vs. bad debt — what’s the difference?

The bottom line

Payday lenders aren’t always transparent about their fee structures or interest rates, but they are technically fixed-rate loans. However, if you don’t pay the loan off in time, the lender can tack on added costs in the form of fees.

Stuck in the payday loan debt trap?

If you’ve taken out a payday loan and are struggling to pay it back, DebtHammer is here to lend a hand. We specialize in helping people escape the payday loan trap.

Contact us today, and we’ll work together to pay off your payday loans once and for all.


Are payday loans secured or unsecured?

Payday loans are unsecured, meaning you won’t have to deposit any collateral. You may, however, be required to submit a post-dated check or submit your banking information.

Can you get a payday loan if you don’t have a bank account?

Yes, sometimes a payday lender will approve a loan based on employment history and income. This contrasts with most banks and credit unions, which will require a checking account to qualify for a personal loan or installment loan.

Do I need a minimum credit score to qualify for a payday loan?

In general, your credit score will not matter if you’re applying for a payday loan and meet the following payday loan requirements:
–Are 18 or older
–Have proof of steady income
–Have a bank account
If you’re applying for a payday loan and don’t have a bank account, the payday lender may run a credit check to determine your creditworthiness.

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