Calculator
A fee is a rate wearing different clothes.
Fifteen dollars to borrow a hundred for two weeks sounds like fifteen dollars. Written the way a bank has to write it, it is about 391.07% a year. Nothing is being hidden here. The number is simply never put in a form you can hold next to a credit card.
A flat fee on a short term converts to an annualized rate by dividing the fee by the principal and scaling by the number of terms in a year. Fifteen dollars per hundred over fourteen days is about 391.07% nominal APR — the figure Regulation Z requires a lender to disclose. Compounded instead, the same deal is an effective annual rate of about 3723.66%; both are true and they answer different questions.
The rate it does not advertise
flat feeIf it is renewed rather than repaid, the fee is charged again and the $500 you borrowed does not go down. After 7 renewals you will have paid more in fees than you borrowed — and you will still owe the whole $500.
This is arithmetic on the numbers you typed, in the units the Truth in Lending Act uses. It does not say whether the loan is legal where you live, and it does not tell you whether to take it.
The same arithmetic, on shapes you have seen
Each row is a fee, converted. The shorter the loan, the bigger the rate — because the same fee has to be earned back that many more times in a year.
Worked examples of common fee structures at a $100 principal. These are structures, not the published prices of any named lender.
| Shape | Fee per $100 | Days | APR |
|---|---|---|---|
| Payday advance | $15 | 14 | about 391.07% |
| Payday advance, one month | $15 | 30 | about 182.5% |
| Pawn-style monthly fee | $20 | 30 | about 243.33% |
| Car title loan, one month | $25 | 30 | about 304.17% |
| Overdraft fee on a small purchase | $35 | 5 | about 2555% |
The renewal is what does the damage
One two-week loan is survivable, and that is how it is sold. The trouble starts when payday comes and the money is not there, so the loan is renewed. The fee is charged again. What you owe does not move. After 7 renewals you have paid more in fees than you borrowed, and you still owe every dollar of it.
Renewal charges the fee against an unchanged principal, so cumulative cost is linear in the number of terms while the balance is flat. At $15 per $100, fees exceed principal at renewal 7. This is the mechanism behind the sustained-use patterns consumer regulators describe; it is not a consequence of default.
When there is no rate on the paper at all
Rent-to-own does not quote a rate because, legally, it is not a loan. A $1,200.00 item at $45.00 a week for 78 weeks comes to $3,510.00. Worked backwards, that is about 181.6%.
A level-payment agreement with no disclosed rate can be solved for one: the periodic rate that discounts the payment stream to the cash price. For the figures above the solved rate annualises to about 181.6%, with $2,310 paid above the cash price.
If the money stayed put
A $75,000 Texas salary
| Spent today | $1,200 |
|---|---|
| Growth given up | $949 |
| Pay needed to buy it | $1,706 |
Assumes a 6% annual return that you can edit.
What it adds up to
A $75,000 Texas salary
| Cash paid | $4,800 |
|---|---|
| Hours of work | 4.7 work weeks |
| A year | $480 |
| Growth given up | $1,527 |
Today’s price held constant; no price rises assumed.
Annualised on a 365-day year, the convention Regulation Z uses. Whether a given rate is lawful depends on state small-loan caps, which this site does not yet model.