Money · Debt

Payday loans and other expensive traps

A payday loan is usually $500 or less, due in one payment in two to four weeks, and a typical $15-per-$100 fee works out to an APR of almost 400%. Rolling it over adds a new fee each time while you still owe the full amount. Car title loans run about 300% APR and can cost you your car. Try first: asking the biller for more time, a credit union payday alternative loan, a small-dollar bank loan, or free credit counseling.

Easy15 min to readFreeChecked October 2, 2026

You'll need

The bill you're trying to cover, and its due date
Your biller's or lender's phone number
The loan's written cost disclosure, if you're comparing

What to know

Know what you're looking at. A payday loan is usually a short-term, high-cost loan of $500 or less, due in one payment on your next payday, typically two to four weeks out. You give the lender a post-dated check or permission to pull the money from your account. Payday lenders generally don't check whether you can repay. Source: CFPB²
Do the math in dollars. Fees usually run $10 to $30 per $100 borrowed. Borrow $500 at $15 per $100, and you owe $575 in two weeks. That's an APR of 391%. Credit cards averaged just under 21% in early 2023. Source: FTC¹
See what a rollover really costs. If you can't repay, many lenders let you pay just the fee and extend the loan, but you still owe the full amount. In the FTC's example, one rollover takes the cost of borrowing $500 from $75 to $150. Several rollovers can mean hundreds in fees. Source: FTC¹
Call the biller first. Ask whoever you owe for more time or a payment plan. Ask whether they'd charge a late fee, extra interest or a higher rate for the extension. Source: FTC¹
Try a credit union or bank. Some federal credit unions offer payday alternative loans (PALs), which are much cheaper than payday or title loans. Community banks and some large banks offer small loans, up to about $1,000, to customers with low or no credit scores. Source: FTC¹
Look for free help. Nonprofit credit counselors in every state offer free or low-cost help. So do some employers, credit unions and housing authorities. Local charities and places of worship may also help in a rough spot. Source: FTC¹
If you still borrow, compare the APR. Lenders must tell you the finance charge (in dollars) and the APR (as a percent) in writing before you sign. Use the APR to compare lenders, and look for late, returned-check and rollover fees in the agreement. Source: FTC¹ Borrow only what you need, and know exactly where the repayment money will come from.

Watch out If you don't repay on time, the lender can cash your check or pull the money from your account. Source: CFPB² That can set off overdraft fees from your bank on top of the loan fees. Know your due date and have the money in the account.

What it really costs

Using the FTC's examples. Source: FTC¹

Option	Borrow	You pay back	Cost
Payday loan, 2 weeks, $15 per $100	$500	$575	$75 (391% APR)
Same loan, rolled over once	$500	$650 total over 4 weeks	$150 in fees, and you still owe $500 after the first rollover
Car title loan, 30 days, 25% monthly fee	$1,000	$1,250, plus other fees	$250 (about 300% APR)
Same title loan, rolled over once	$1,000	$1,500, plus other fees	At least $500 for 60 days

Cheaper ways to cover a gap

Ask the company you owe for more time or a payment plan. Source: FTC¹
A payday alternative loan (PAL) from a federal credit union. Source: FTC¹
A small-dollar loan from a community bank or your bank. Source: FTC¹
File your taxes early if you're due a refund. The IRS usually issues e-filed refunds in 21 days or less, faster with direct deposit. Source: FTC¹
Free or low-cost nonprofit credit counseling. Source: FTC¹
Family or friends. Every dollar they lend is a dollar you don't pay payday rates on. Source: FTC¹
Local charities and places of worship. Source: FTC¹

See it done

Video by Khan Academy Nonprofit

Predatory lending

Watch on YouTube: Predatory lending | Loans and debt | Financial Literacy | Khan Academy

Full title on YouTube: “Predatory lending | Loans and debt | Financial Literacy | Khan Academy”2024 · Checked October 3, 2026

Video won't load at school or work? No problem. Everything you need is in the steps; the video's just a bonus. Watch it on YouTube later.

If it doesn't work

Stuck in a cycle of rollovers? Call a nonprofit credit counselor, and check your state's payday lending rules with your state attorney general or regulator. Some states cap rates or require lenders to be licensed. Source: FTC¹
Think a payday or title lender lied to you? Contact your state attorney general or consumer protection office. Source: FTC¹
In the military? The Military Lending Act caps the rate on payday loans, title loans, personal loans and credit cards at 36% for servicemembers and their dependents. Military OneSource (1-800-342-9647) can connect you with financial counseling and relief societies. Source: FTC¹

Good to know

The details, if you want them. Tap a line to open it.

Car title loans

Title loans typically last 15 or 30 days and use your vehicle as collateral, usually for 25% to 50% of its value. If you can't repay, the lender can repossess the car, even if you've made partial payments. Some install GPS and remote shut-off devices. Source: FTC¹

Your state may ban them

Some states don't allow payday lending, and others cap the fees and loan size. Your state regulator or attorney general has the rules. Source: CFPB²

A cushion is the real fix

A small emergency fund is what keeps you away from these loans next time. Source: CFPB³

Take it with you

Printable card Download card (PDF)

Sources

Federal Trade Commission What to know about payday and car title loans
Consumer Financial Protection Bureau What is a payday loan?
Consumer Financial Protection Bureau An essential guide to building an emergency fund

Lesson M5.5 · Last checked October 2, 2026 against the sources listed.

Report a mistake

Next in MoneyFilling out a W-4

Once a week, if you want it

One new lesson or checklist a week. Totally optional. The lessons never need a sign-up.