- $500 Payday Loans can cost different amounts depending on factors such as your credit score and your state regulations.
- Currently 18 states and the District of Columbia have enacted rate caps of 36% or less.
- A $500 payday loan with an APR of 36% borrowed for 12 months will cost $180 in fees over the year.
Fees and Charges
In addition to the interest rates, payday loans often come with various fees and charges. Common fees associated with payday loans include:
- Origination Fees: These are fees charged when the loan is initially taken out and can range from $15 to $30 per $100 borrowed.
- Late Payment Fees: If you can’t repay the loan on time, you may incur late payment fees, which can add up quickly.
- Rollover Fees: Some borrowers may extend their payday loans, which incurs additional fees.
- Collection Fees: If you default on your payday loan, collection agencies may become involved, leading to more fees.
Payday loans are typically meant to be repaid in full on the borrower’s next payday, which is usually within two to four weeks.
If you cannot repay the loan in full at that time, you may have the option to extend it by paying the interest and fees. However, this can lead to a dangerous cycle of debt, often referred to as the “payday loan trap.”
Calculating the Cost of a $500 Payday Loan
Now, let’s break down the cost of a $500 payday loan using the average interest rates and fees mentioned earlier:
- Interest: If the payday loan carries an average interest rate of 350% APR, the interest on a $500 loan for two weeks would be approximately $87.50.
- Origination Fee: Assuming a $20 origination fee, this adds to the cost.
- Late Payment/Rollover Fees: If you can’t repay the loan on time and need to roll it over for another two weeks, you’ll incur additional fees.
- Collection Fees: If the loan goes into collections, more fees will be added.
Alternatives to $500 Payday Loans
Given the costs and risks associated with payday loans, it may be useful to explore safer alternatives:
- Emergency Fund: Building an emergency fund can provide a financial safety net for unexpected expenses.
- Personal Loans: Personal loans from banks or credit unions typically have lower interest rates and more favorable terms than payday loans.
- Credit Cards: If you have a credit card with available credit, it can be a less expensive way to cover short-term expenses.
- Borrowing from Family or Friends: Consider reaching out to friends or family for a loan before resorting to payday loans.
- Financial Counseling: Consult with a financial counselor to explore budgeting and debt management strategies.
- Title Loans: title loans are a slightly different type of loan in that they require you to put up your vehicle as collateral – this type of loan is known as a secured loan. The cost of title loans can be lower than payday loans as your collateral drives down the cost of borrowing.