If you find yourself needing cash in between pay days or facing an emergency expense, you might have thought about getting a payday loan. There are lots of payday loan ads on TV or the internet for a “same day loan”, “instant approval” or “borrow with bad credit.” Payday loans like this promise “money in minutes” from lenders who “don’t care if you have bad credit.” But the truth is that these predatory lenders offering payday loans often charge an interest rate of 372% annually – which is way higher than a typical loan.

We care about your financial wellness, and want to ensure you understand the true cost of a payday loan when you’re facing a cash crunch.

What should I do when my paycheck comes up short or I’m facing an emergency expense?

If you have an emergency savings fund, tap that first. After all, it’s your emergency fund – and it’s cheaper to pay yourself back than to pay back a loan. If you don’t have savings to tap into, read on to learn about payday loans – and other options that may be better.

What is a payday loan?

Payday loans are short-term loans regulated by state law. In California, payday loans can be up to $300, charge up to 460% APR plus 15% in fees, and must be for no longer than 31 days. (Typical payday loans are due in two weeks – the time until you receive your next paycheck.)

What’s the true cost of payday loans?

If you borrow a payday loan in California, the maximum amount you’re getting will be $300. If you borrow that amount, the lender may charge you up to $45 in fees – $15 for every $100 you borrow.

In addition to the fees, the lender will also charge you interest. Interest is expressed as the “annual percentage rate,” or APR. Even though payday loans are only for two weeks (or up to 31 days), your interest charges will still be expressed in annual terms as the APR.

California law caps the APR at 460% for payday loans, and the average APR charged is 372% according to the California state government. This means you’ll owe, on average, $46 in interest on a two-week loan. For comparison, credit cards, which can have high interest rates, top out at around 22.6% APR according to a 2020 report from US News and World Report – more than ten times lower than 372%. We have credit cards available with some of the best interest rates around – check out our credit card products to see our rates and learn about what card may be a good fit for you.

The bottom line: a $300 payday loan will cost you around $391 – so you’re paying $91 for the ability to get $300. That’s a very high cost – especially when compared with the cost of other loan alternatives.

What are some alternatives to payday loans?

Because of the high cost of payday loans, we urge you to consider other options. Check out our article on payday loan alternatives for 7 ideas. Because of their high cost, almost any alternative is better than a payday loan.

I still don’t know what to do – how can Patelco help?

We are always here for you, and we encourage you to talk to us. Visit patelco.org/FinancialJourney to request a call with one of our Certified Financial Specialists. They’ll listen to you and help you come up with alternatives to a payday loan.