Payday Loans & High-Cost Credit
The fastest way to borrow $300 can be the most expensive money you’ll ever touch — understanding why is the whole point.
What Is It
A payday loan is a small, short-term loan — typically a few hundred dollars — due in full on your next payday, usually within about two weeks. Auto title loans work on a similar model but use your car's title as collateral instead of a paycheck. Both are built around fast approval and minimal underwriting, with a cost structure sized for a single short repayment window rather than a multi-year term. They're typically marketed to borrowers who need cash quickly and might not qualify for a traditional bank loan, often with no credit check required.
Why It Matters
The cost only becomes clear once it's converted to an annual rate. Per the CFPB, the median payday loan carries a fee of $15 per $100 borrowed on a typical 14-day term — on a median loan of $350, that works out to roughly 391% APR. Because the loan is due in full so quickly, many borrowers can't repay it out of a single paycheck, so they renew it for another fee or take out a new loan shortly after paying off the last. Roughly 80% of payday loans are renewed or followed by another loan within 30 days, and half of all payday loans are part of a sequence that runs 10 or more loans long.
Auto title loans follow a similar reborrowing pattern and carry a further risk: roughly 20% of single-payment title loan borrowers end up having their vehicle repossessed.
Quick Example
A borrower takes out a $350 payday loan and pays a $52.50 fee — $15 per $100 borrowed — to cover it for two weeks. If they can't repay the full $402.50 on payday, they pay another $52.50 fee to renew the loan for two more weeks, with the original $350 still owed. Six renewals in, they've paid over $300 in fees alone without reducing the amount borrowed.
Related Concepts
Sources & Methodology
- Median fee, 14-day term, 391% APR on a $350 median loan, ~80% renewed or reborrowed within 30 days, and ~20% title-loan repossession rate: Consumer Financial Protection Bureau — Payday Loans, Auto Title Loans, and High-Cost Installment Loans: Highlights from CFPB Research (2016)
- Half of all payday loans belonging to a sequence of 10 or more loans: Consumer Financial Protection Bureau — Data Point: Payday Lending (2014)
- Quick Example figures calculated at $15 per $100 borrowed on a $350 loan, compounded over six 14-day renewal cycles.