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Payday loan rates vary from state to state. In this guide from Pheabs, we’ll run through the information you need to find out the typical rates you should expect from a payday loan.

According to the Consumer Financial Protection Bureau, a standard two-week payday loan will carry a charge of $10 to $30 on every $100 borrowed depending on state regulations. Put in context, a low-end rate of $15 per $100 would come to an annual interest rate of 400%. By comparison, the average APR for another form of borrowing, credit cards, is 15.09%, according to the Federal Reserve.

An annual percentage rate (APR) is the value given to denote the yearly interest rate charged to borrowers. APR represents the actual annual cost over the term of a loan. For short-term payday loans, the APR is partially determined by state-level restrictions. Payday loan APRs regularly reach three figures, and in some cases, four figures! Four states don’t have any interest-rate caps at all. For example, in Missouri, an APR as high as 1,950% for a loan of $100 for 14-days would be permitted.

According to the Center for Responsible Lending, the average APR in Nevada, for example, is 652%. In contrast, states with more protections see far lower average APRs. Virginia, for example, has a 254% average interest rate.

Why Do Payday Loan Rates Get So High?

At first glance, what might seem like a fair fee for borrowing money could skyrocket because the loan’s length is so short. This is because APR factors in time. Those applying for a payday loan are typically in a financial emergency that cannot wait until payday. As a result, they may be looking to borrow for a short amount of time, around 2-4 weeks, until their next check comes.

Lenders also claim the high rates are necessary because of the high risk involved with this kind of lending. Payday loans are targeted toward consumers in need of money fast. Therefore, they are generally easy to receive compared to other borrowing forms. A customer would only need a valid ID, proof of income, and a checking account to be approved in most cases. Credit checks are often discarded to approve applicants quickly. As a result, lenders justify the extremely high rates because of the increased risk that comes with the loan.  Lenders don’t have the security that consumers will pay the loan back, and, unlike a mortgage or car loan, there’s typically no collateral either.

A payday loan has its perks and may sound like the perfect solution to your cash problems. However, you should always carefully consider whether you have any other way to settle your payday loan debt to avoid dealing with the possible dangers. Payday loans can help you get through when you’re in a tight spot and can’t see a way out. They can be incredibly helpful in a financial emergency– but at the same time, there are some dangers that you might want to be aware of. We all want the security of feeling that we are making a wise financial choice. For more information, read our guide: The Dangers of Payday Loans