How to Use a Payday Loan Calculator

On the surface, a payday loan looks like a quick and easy way to make ends meet. You’re strapped for cash before payday. Why not borrow a few hundred and pay a small fee to do so?

What looks like a small fee at first often adds up to thousands of dollars. The interest rate on most payday loans is often in the triple digits. Before you take out a payday loan, use our loan calculator to determine your interest rate.

Payday loans: What to know before you apply

If you do think you need to get a payday loan, it’s helpful to know what you’re getting into first. Becoming familiar with some finance terms can help you grasp what you’re responsible for and how much the loan itself might cost.

Finance terms you should know:

• Principal: The principal is how much you borrow. A payday loan is usually between $50 and $1,000.
• Repayment term (number of days): The repayment term is how long you have to pay back the loan. With payday loans, it’s usually a matter of days, such as 14, 21 or 28 days.
• Loan APR (Annual Percentage Rate): The APR is the annual cost of borrowing money. It’s the interest rate plus any other fees the lender charges. It’s usually expressed as a percentage.
• The total cost: The total cost is how much you’ll end up paying to repay the loan, including fees, interest and the amount you borrowed.
• Finance charge: A finance charge is a flat fee you pay to borrow money. It can be expressed as a percentage of your loan, such as 20%, or in a dollar amount, such as $25.
• Creditor: A creditor is another name for a lender. It’s the company the borrower owes money to.
• Loan agreement: The loan agreement outlines the terms of the loan, including when you’ll repay and how much you need to repay.
  READ MORE: Check out our debt glossary and learn the debt terms you need to know

Calculate your interest rate using this payday loan calculator:

Things to keep in mind when using an online payday loan calculator

• It’s just an estimate: You might have to pay more based on the conditions of the loan.
• Double-check your information, as the results you get are based on the details you provide.
• Use an online loan calculator as a tool, but don’t let it be your only source of info.
• Fees and rates can vary considerably based on the laws in your state.
• Ask the lender if there are any hidden fees or fees not mentioned upfront. Different lenders have different fees.

READ MORE: Is my payday lender licensed in my state?

How do interest rates work?

The interest rate on a loan is usually expressed as a percentage of the amount borrowed, aka the principal. For example, you might get a mortgage with a 4% interest rate or a credit card with a 25% rate.

As you can see, there’s a wide range of rates out there. How much a lender charges in interest is based on the borrower, the amount borrowed and the type of loan. Usually, the higher the risk to the lender, the more interest charged.

Mortgages typically have low rates compared to other types of loans. They’re also a lot harder to qualify for than most other loans. You need to provide proof of income, assets and creditworthiness before you can get a mortgage.

The house you buy acts as collateral, so at least the lender isn’t left empty-handed if you stop paying your mortgage.

Loans that don’t require you to jump through so many hoops typically have higher interest rates. You can get a credit card pretty easily, but you also typically have to pay double-digit interest rates.

A title loan is easy to get because your vehicle is the collateral, and the interest rate is very high — usually around 300%. There’s also a lot of risk involved with title loans because if you can’t make the payments, you lose your transportation.

A payday loan is also pretty easy to get. Some places just ask you to provide a pay stub or a car title.

Payday loans also have astronomically high interest rates and repayment amounts. If you think a 25% rate on a credit card is high, then you’ll be floored to know that many payday loans charge 300% or more.

If you’re looking at your payday loan and thinking that a $20 loan fee for every $100 borrowed doesn’t look like 300%, you’re right, but also wrong.

The 300% or so is the annual percentage rate (APR) on the payday loan. It’s what you’d pay per year on the amount borrowed. APR takes into account the interest rate, plus any fees the lender charges you.

READ MORE: What you need to know about payday loan interest rates

An example

Confused? An example might help clarify things.

Let’s say you need to borrow $500 to get you through to your next payday in two weeks. You head to a payday lender and they approve you for a $500 loan. The fee on the loan is $100, or $20 for every $100 you borrowed.

Two weeks pass by and you don’t have the $500 to pay back. The lender says, no big deal, you can just pay the $100 fee and extend the loan. You pay the fee and feel confident you’ll have the $500 to repay in two weeks, plus an additional $100 fee.

The lender might also let you extend the term of your payday loan, without making you pay the $100 fee. Instead, that $100 gets tacked on to the cost of the loan, meaning you owe $600, plus the additional $20 per $100 fee, which is now $120.

You need to pay the lender $720 to put the loan behind you. You’ve had this loan for just four weeks and already you need to pay $220 in interest, nearly half the borrowed amount.

And those rates can be even higher if you borrow from a tribal lender.

READ MORE: Pros and cons of payday loans

How are payday loan interest rates calculated?

You can calculate the APR for your payday loan based on the fee charged, the principal amount and the length of the loan term.

Then, you just need to do some simple math. Let’s walk through an example together.

• You borrowed $375. The fee is $15 per $100 borrowed, so $56.25 total. You have 15 days to repay the loan.
• Divide the fees by the principal: $56.25 / $375 = 0.15
• Multiply the answer in Step 1 by the number of days in the year: 0.15 x 365 = 54.75
• Divide the answer in Step 2 by the number of days in the loan term (15): 54.75 / 15 = 3.65
• Multiply the answer in Step 3 by 100: 3.65 x 100 = 365% APR

READ MORE: Payday loan interest rates

How does an online payday loan work?

An online payday loan might be more convenient than visiting a storefront lender because you can apply for an online loan without leaving your home.

Generally, the application process for online payday loans is similar to the process at a brick-and-mortar lender.

The lender will ask you about your job and income and for your banking details. How much you can borrow varies based on the state, but is usually similar to the amounts available from storefront lenders.

Most people get approved for an online payday loan. If that’s the case for you, the funds should hit your bank account in one business day. Some people get the money the same day.

Unlike a storefront lender, an online payday lender uses an Automated Clearing House (ACH) network to give you the money. The lender has your bank info, including the account number. They can directly connect your bank account to their payment system.

The lender can also withdraw money from your account if it chooses to do so and if you authorize it to do so when you sign your loan agreement. It’s possible to stop the automatic debits, but it takes some extra effort.

To avoid overdrawing your account or getting slammed with an insufficient funds fee, it’s important to understand the terms and conditions, fees and rates, and your monthly budget before signing up for a payday loan.

READ MORE: What happens if you don’t repay your payday loan?

Alternatives to payday loans

With their sky-high interest rates and predatory practices, it’s best to avoid payday loans if at all possible. Luckily, there are multiple options out there that cost less:

• Personal loans: Plenty of lenders offer personal loans to qualified borrowers. Your bank or credit union likely has them, and there are also several online lenders out there. Personal loans typically have interest rates that are lower than payday loans and credit cards. You might need to have a decent credit score to get one, though. And before you commit to any loan, make sure the lender is legitimate.
• Cash advance apps: A cash advance app might sound like a payday loan but there are big differences. One is the amount you can borrow, which is usually $100 or $200, max. The other is the fees. Some cash advance apps use an optional “tip” feature or charge a subscription fee.
• Credit union loans: Some credit unions offer payday alternative loans (PALs), which are designed to help you break the payday loan cycle. PALs usually have way lower interest rates than payday loans. You usually have to be a member of a credit union to qualify for one.
• Installment loans: Online installment loans are similar to personal loans but usually have higher interest rates and lower credit requirements. You borrow a set amount, such as $500, and repay it in equal amounts over a set term, such as 36 months.
• Credit card cash advance or balance transfer: A traditional credit card cash advance has some interest and fees, but they’re significantly less than what you’d pay a payday lender. If you have good credit, a balance transfer credit card can help you repay your debt and avoid interest. Many balance transfer cards have an introductory period with 0% interest. If you pay your debt off before the introductory period ends, you can save a lot of money.

Other ways to get out of debt

If you’re ready to break the payday loan cycle, you have multiple options for getting out of debt.

Consider debt consolidation

Debt consolidation can take multiple forms, but the premise of each is the same. You roll multiple debts into one and make a single payment monthly.

Take a look at three popular methods to consolidate debts.

• Debt settlement: With debt settlement, a third-party company negotiates with your creditors and gets them to agree to settle your debt, usually for much less than you owe. In exchange, the creditor gets the settlement amount in one lump sum. You can try to settle a debt on your own, but doing so has some risks. Part of debt settlement involves not paying the creditor while negotiating. If you try DIY settlement and it doesn’t go as planned, you could end up owing a lot more and having your credit damaged.

READ MORE: DIY debt settlement

• Debt management plan: With a debt management plan (DMP), you work with a nonprofit credit counseling agency to create a repayment plan. The counseling agency usually reaches out to your creditors on your behalf to negotiate the plan’s terms. Instead of making a lump sum payment, you end up repaying your debt over the course of several years, usually three to five. You can’t take out new loans or credit cards when you’re on a debt management plan. Often, debt management plans are only available for certain types of loans, such as payday loans or credit card debt.

READ MORE: Complete guide to credit counseling

• Debt consolidation loan: With a debt consolidation loan, you take out a single loan in the combined amount of all your debts. You then use the principal from that loan to repay your other debts. Ideally, with a debt consolidation loan, you get a lower interest rate and will pay less over time to repay what you owe. A drawback of a debt consolidation loan is that you might not be able to get one based on your credit score or current income.

READ MORE: How debt consolidation works

Budget and reduce your monthly expenses

While a budget won’t wipe out your current debt, it will help you establish patterns and practices that will help you avoid debt in the future.

The key to creating a budget is knowing what you bring in and what you spend monthly. You might need to cut back on expenses or find ways to make more money based on your income and spending.

Here are some ways to do that:

• Ask for overtime at your job
• Start a side hustle, such as driving for a rideshare company, selling handmade soaps or pet sitting.
• Bring your lunch to work.
• Cook dinner at home.
• Cut back on or eliminate alcohol.
• Brew coffee at home.
• Shop secondhand (it’s better for the planet, too).
• Shop around for new or cheaper phone, internet or TV service.
• Consider cutting cable.
• Review your streaming subscriptions and eliminate the ones you use the least.
• Use your local library for books, movies, and digital resources.
• Switch off the lights when you leave a room.
• Turn your thermostat up in the summer and down in the winter.
• Read the sales flyers and clip coupons.
• Review your pantry and fridge before you grocery shop.
• Shop with a list.
• Make a meal plan and use up what you’ve already got.
• Carpool to work or kids’ activities.

READ MORE: Simple ways to reduce expenses and boost savings

More online calculators

Everyone’s financial situation is unique, and other online resources can help you consolidate your debts. Use debt calculators to get a sense of what you owe and what you can do to pay it off quickly.

• Debt payoff calculator: See how quickly you can pay off your debt by increasing your monthly payment.
• Personal loan calculator: See how much you’d paid each month and the estimated APR based on the length of the loan, the amount you want to borrow and your credit score. 
• Auto loan calculator: See how much you need to pay monthly if you get an auto loan or title loan, based on the loan term, down payment and other rebates and credits.
• Interest calculator or APR calculator: See what the interest rate or APR on a loan is to determine if you’re getting a good deal or not.

The bottom line

Sometimes, you need to see the numbers in front of you to understand just how expensive payday loans are. 

Using a payday loan calculator can be like a splash of cold water on your face. It shocks you and can spur you to take action. 

If you took out a payday loan and have any questions about payday loan debt consolidation, please give us a call or request a free consultation.

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