Key Takeaway
Payday loans charge fees that translate to APRs of 300–700% when annualized. A ₹10,000 payday loan with ₹500 fee for 2 weeks equals 650% APR , making them the most predatory form of lending.
Annualized Rate Warning:
Charging a fee of ₹500 on borrowing ₹5,000 for just 14 days represents a flat fee rate of **10%**. Annualizing this rate yields a staggering true interest rate of 260.71% APR p.a.
- Total payoff: ₹5,500.
- Typical high-rate credit card APR: 36% - 42% p.a.
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Frequently Asked Questions
What is a payday loan?
A payday loan is a high-cost, short-term cash loan, typically due on your next payday. Lenders charge flat transaction fees for short terms.
How high is payday loan interest?
Because payday loans charge flat transaction fees for short tenures (e.g. ₹500 fee on ₹5,000 for 14 days), their annualized percentage rate (APR) is extremely high, often exceeding 250% p.a.
Why are payday loans risky?
Their high APR makes repayment difficult, trapping borrowers in a rollover cycle where they borrow new payday loans to pay off older ones, accumulating heavy debt.
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