Payday Loan Costs: Reading Fees, Finance Charges, APR, and Total Due

Use the loan’s principal and finance charge to find the scheduled dollars owed; use APR to compare the cost of credit across different loan amounts and terms.

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Hands sort copper coins into three measured groups beside wooden blocks of different heights on an outdoor patio, making principal, finance charge

Four figures tell different parts of the cost story

TermUnitRepresentsAppearsRepayment RelationCommon Error
Principal or amount financedDollarsThe amount borrowed before the disclosed cost of credit is added.Near the main loan amount in the disclosure and agreement.It is the starting amount for calculating the scheduled repayment.Treating the amount received as the full amount that must be repaid.
Finance chargeDollarsThe disclosed dollar cost of credit.In the federal disclosure and often in the loan’s pricing terms.For a simple single-payment loan, principal plus finance charge produces the scheduled amount due.Reading a fee as separate from the finance charge when disclosure rules include it in that figure.
Total of paymentsDollarsThe scheduled dollars required under the original payment schedule.In the disclosure or repayment schedule.It should equal the sum of every required scheduled payment.Mistaking a low installment for a low overall repayment.
Annual percentage ratePercentage per yearAn annualized measure of credit cost that relates cost to the amount borrowed and the loan term.In the federal disclosure as APR.It does not add a separate dollar charge to the payment schedule.Treating APR as the number of dollars charged on this particular loan.

Check the scheduled dollar total first

Suppose a loan advances $300 and lists a $45 finance charge. If the agreement calls for one payment and no later event triggers another charge, the scheduled amount due is $345: $300 principal plus $45 finance charge.

The same $345 obligation can be spread over installments. A schedule of three required payments of $115 adds to $345, because $115 + $115 + $115 equals $345. The installment size describes when the money is due; the sum of installments describes the scheduled repayment.

Optional products and charges triggered by a later event do not belong in this original arithmetic unless the agreement makes them part of the scheduled payments.

APR converts time and cost into a comparison rate

APR annualizes the credit cost, which is why a short loan can show a striking percentage even where the finance charge is a comparatively small dollar amount. The Federal Trade Commission illustrates the effect with a two-week loan charging $15 for every $100 borrowed: that pricing is equivalent to an APR of almost 400 percent.

The $15 is the dollar charge in that example. The almost-400-percent figure expresses what that charge looks like when measured against $100 and projected over a year. APR is useful for comparing loans with different fee structures, but the disclosure’s stated APR—not a rough annualization shortcut—controls because prescribed calculations can depend on the payment structure.

Federal Trade Commission — official information

Cost per borrowed dollar adds a second comparison

A simple dollar-cost measure divides the finance charge by the principal. In the illustrative $300 loan with a $45 finance charge, $45 divided by $300 equals 0.15. The charge is therefore 15 cents per dollar borrowed, or $15 per $100 borrowed.

That measure makes the fee easier to compare across loan sizes, but it does not replace the payment schedule or APR. Two loans can charge the same $15 per $100 borrowed while requiring repayment on very different dates, with very different installment amounts and payment pressure.

Separate scheduled charges from charges triggered later

The original disclosure describes the scheduled credit cost. The following categories concern later events or separate choices and need to be read in the agreement, account record, and applicable law rather than silently folded into the original finance charge.

  • Late-payment amounts tied to a missed due date.
  • Returned-payment or unsuccessful-withdrawal amounts tied to a payment attempt.
  • Extension or refinancing amounts tied to changing the original repayment arrangement.
  • Optional-product charges tied to an added product rather than the basic loan.
  • Bank charges caused by an account event.
  • Collection-related amounts that arise after delinquency or collection activity.

Reconcile the disclosure with the agreement before relying on either

Reconcile the loan disclosure with the signed agreement and payment schedule. Compare these items directly, then seek clarification for a discrepancy before treating a stated number as the loan’s scheduled obligation.

  • Principal or amount financed.
  • Finance charge and any separately described interest or fee.
  • APR.
  • Total of payments.
  • Every due date and installment amount.
  • Language describing late, returned-payment, extension, refinancing, or other contingent charges.
  • Any optional item and its price.
  • The creditor’s identity.

Where to check the figures