Fee-based short-term loans and per-diem interest

A loan priced by a fee

A payday loan, a title loan, a cash advance and an overdraft are all priced the same way: a fee for holding an amount for a number of days, repaid in one payment. The fee is usually quoted per $100 borrowed.

fee          = amount ÷ 100 × fee per $100   (+ any flat fee)
you repay    = amount + fee
APR          = fee ÷ amount × 365 ÷ days in the term

That APR is the fee stretched to a year, the way the Truth in Lending disclosure for a single-payment loan states it. It does not compound.

Renewing ("rolling over")

Renewing means paying the fee to move the due date. The amount owed does not fall. Each renewal charges the same fee again.

fees paid    = fee × (1 + number of renewals)
paid in all  = amount + fees paid
APR          = unchanged: the same price for each term

Worked example

$500.00 at $15 per $100, due in 14 days.

fee          = $75.00
you repay    = $575.00
APR          = 391.07%

renewed four times (70 days):
fees paid    = $375.00
paid in all  = $875.00

Per-diem interest

A simple-interest loan adds interest every day. A payoff letter quotes that daily amount, the per diem, so the payoff can be adjusted to the day the money arrives.

per diem     = balance × annual rate ÷ 365, rounded to the cent
days' interest = per diem × days

$17,289.14 at 18%:
per diem     = $8.53
12 days      = $102.36

Limits

• Fees, terms, renewals and extended payment plans are set by state law and by the lender. The figures here are arithmetic on the terms entered, not a statement of what any lender may charge.
• Some lenders use a 360-day year for per diem, or round differently. The contract and the payoff letter are the authoritative figures.
• Tips and optional fees on cash-advance apps are treated as part of the cost when they are paid.