What is the approximate average APR for a payday loan?

The approximate average APR for a payday loan is commonly cited around 400%. This figure is based on the fact that payday loans typically have very high annual percentage rates because they are designed to be short-term, high-risk loans. The APR represents the cost of borrowing expressed as a yearly interest rate, which can seem extraordinarily high when viewed over the course of a year, especially compared to more traditional forms of credit.

Payday loans usually have a very short repayment period—often just a couple of weeks—so if the fees associated with these loans were converted to an annual percentage rate, they reflect an APR that can reach four times or more the amount borrowed. This high rate is due to the lender's need to offset the risk from borrowers who may have poor credit histories and the associated high default rates.

This average APR underscores the importance of understanding the costs associated with different types of loans and encourages individuals to explore alternatives that offer lower interest rates and more manageable repayment options.