How the Payday Loan Calculator works
A payday loan is a single-payment, short-term loan: you borrow a fixed amount, pay a flat finance charge for the privilege, and repay the full balance in one lump sum — typically on your next payday, days or weeks later, not amortized over months. Because the whole cost is packed into such a short term, the dollar fee alone tells you little about how expensive the loan really is. This calculator converts that flat fee into an annual percentage rate (APR) so it can be compared against other forms of credit on the same scale.
The formula
The calculator uses the Truth in Lending Act (Regulation Z) method for annualizing a single-payment loan's finance charge:
APR = (Finance charge ÷ Loan amount) × (365 ÷ Term days) × 100
The finance charge is divided by the loan amount to get the fee as a fraction of principal, then that fraction is scaled up by how many loan-term periods fit into a 365-day year. The total repayment due at the end of the term is simply the loan amount plus the finance charge: Total repayment = Loan amount + Finance charge.
Worked example
Borrow $300 with a $45 finance charge due in 14 days. The total repayment is $345. The APR is (45 ÷ 300) × (365 ÷ 14) × 100 = 0.15 × 26.07 × 100 ≈ 391%. That same $45 fee, expressed per $100 borrowed, is $15 — a number that sounds modest until it is annualized over a 14-day term instead of a full year.
Why the APR looks so much higher than the fee
APR measures cost per year, regardless of how long the loan actually runs. A 15% fee repaid in two weeks is mathematically equivalent to paying that same 15% roughly 26 times over — once per two-week period — across a full year, which is what produces a triple-digit APR from what looks like a small flat charge. A loan with the same dollar fee but a longer term annualizes to a much lower rate, because the cost is spread over more days.
Rollovers and renewals
Some payday loans can be "rolled over" or renewed: instead of repaying the principal, the borrower pays another finance charge to push the due date back. This calculator's rollover input multiplies the finance charge by the number of renewals entered (assuming the same fee each time) to show how the total cost accumulates when the principal is never paid down. Renewing a $300 loan with a $45 fee three times, for example, adds up to $180 in finance charges — $135 more than a single 14-day term — on top of the original $300 borrowed.