🎯 In 30 seconds: Fast-cash products quote a fee, not a rate, so they look cheap. Turned into an annual rate, a typical payday loan costs close to 400% and a typical car title loan about 300%. Rent-to-own can cost twice the cash price. The real danger is repeat borrowing. A credit union payday alternative loan, capped at 28% APR, costs a small fraction of that.
Why a “$15 fee” is a 391% loan
The CFPB says a common payday charge is $15 for every $100 borrowed for two weeks. That sounds like 15%. But it is 15% for two weeks. Spread over a year:
15% × (365 ÷ 14 days) = about 391% APR.
Even a high-rate credit card charges a small fraction of that. The Money math page in this section shows how to turn any fee into an annual rate yourself.
The rollover cycle: worked example
Kim borrows $400 from a payday lender at $15 per $100, due in two weeks. The fee is $60, so $460 is due on payday. Kim’s rent is due the same week, so Kim pays only the $60 fee and “rolls over” the $400 for another two weeks. This repeats.
| After 2 weeks | $60 paid in fees, still owes $400 |
| After 6 weeks | $180 paid in fees, still owes $400 |
| After 12 weeks | $360 paid in fees, still owes $400 |
Kim has paid almost as much in fees as the loan itself and has not reduced the balance at all. Now compare a federal credit union payday alternative loan (PAL) for the same $400 over 3 months at the 28% cap: three payments of about $140, about $19 of interest, plus an application fee of no more than $20. Roughly $39 in total cost, versus $360 and counting.
The products side by side
| Product | How it works | What it can cost | The main risk |
|---|---|---|---|
| Payday loan | Small loan due on your next payday; lender takes a post-dated check or bank access | $10–$30 per $100 for two weeks, depending on state law (CFPB) | Rollovers; bank overdraft and returned-payment fees on top |
| Car title loan | Your car title is the collateral; the whole amount is usually due in one payment | Typical APR about 300% in CFPB research | CFPB research found more than 4 in 5 were renewed on the due date, and about 1 in 5 single-payment borrowers had the car seized |
| Rent-to-own | Weekly or monthly payments on furniture or electronics; you own it after the last payment | The FTC says the total can reach about double the cash price | Miss a payment and you can lose the item and everything paid |
| Buy now, pay later (BNPL) | Usually a few installments over weeks or months | Often no interest, but late, per-payment or reschedule fees on some plans | Several plans at once; autopay overdrafts; weaker dispute rights |
| Pawn loan | You leave an item; get it back when you repay | Set by state law; often high monthly charges | You lose the item if you do not repay |
Rent-to-own: do the multiplication
A TV sells for $600 in cash. The rent-to-own offer is $19 a week for 78 weeks. Total: $19 × 78 = $1,482, almost two and a half times the cash price. The FTC’s advice is to ask for the total cost and the cash price in writing and compare them, and to ask what happens if you miss a payment or return the item. Saving $19 a week would buy the same TV in about 32 weeks.
Buy now, pay later: where it goes wrong
BNPL can be interest-free if every payment is on time. The FTC and CFPB point to the problems:
- Stacking. Four small plans at once can quietly add up to a car payment.
- Autopay from debit. If the account is short on the payment date, your bank may charge an overdraft or returned-payment fee.
- Late fees and collections. Most BNPL companies charge late fees. Unpaid balances can go to collections and be reported, which lowers credit scores.
- Returns and disputes. Protections can be weaker than with a credit card, and getting a refund can be slow while payments keep coming due.
A simple rule: only use BNPL for something you could pay for today in full, and put every due date in your calendar.
Cheaper options when cash is short
- Ask the company you owe for a payment plan or a later due date. Utilities, hospitals and many landlords have them.
- Federal credit union PALs. PAL I loans run $200 to $1,000 for 1 to 6 months, after at least one month of membership. PAL II loans go up to $2,000 for 1 to 12 months, with no membership wait. Both are capped at 28% APR and an application fee of up to $20, and rollovers are not allowed. Find one with the NCUA’s credit union locator.
- An employer pay advance, if your employer offers one. Read the fees.
- A credit card cash advance is expensive, but usually far cheaper than 391%. See How credit cards really work in this section.
- Local help. Dial 211 to reach community programs for rent, utility and food assistance.
- What APR is a $15 per $100 two-week payday fee? Answer: About 391%.
- After rolling a $400 payday loan for 12 weeks at $60 per two weeks, what has been paid and what is owed? Answer: $360 in fees, and the full $400 is still owed.
- What is the APR cap on a federal credit union payday alternative loan? Answer: 28%.
- A $600 TV at $19 a week for 78 weeks costs what in total? Answer: $1,482.