Use this High Cost Loan Calculator to quickly estimate the true cost and annualized interest rate (APR) of predatory, short-term financial products such as payday, title, or installment loans. Understanding the APR is crucial for comparing offers.
High Cost Loan APR & Cost Calculator
Calculated Total Cost (Interest + Fees):
Effective Annual Percentage Rate (APR):
High Cost Loan APR & Cost Formula
The calculation is split into two primary parts: Total Cost and the Effective Annual Percentage Rate (APR).
1. Total Finance Charge (Cost)
Total Interest = Principal × (Periodic Rate / 100) × Number of Periods
Total Cost = Total Interest + Upfront Fees
2. Effective APR (Annual Percentage Rate)
Loan Term (in Days) = Number of Periods × Period Length (in Days)
Effective APR = (Total Cost / Principal) / (Loan Term in Days / 365)
Formula Source: Investopedia – Annual Percentage Rate (APR)
Variables Explained
A breakdown of the inputs required for accurate calculation:
- Loan Principal ($): The initial amount of money you borrow.
- Upfront Fees: Any fees charged at the start of the loan (e.g., origination or application fees).
- Interest Rate per Period (%): The interest rate applied for each period of the loan (e.g., 15% every 14 days).
- Number of Periods: The total number of periods over the loan’s term.
- Period Length: Defines how long one period is (e.g., 14 days, 30 days, etc.).
Related Calculators
Explore these tools to manage your debt and assess different loan types:
- Title Loan Interest Calculator
- Payday Loan Fee Comparison Tool
- Simple vs. Compound Interest Calculator
- Debt Consolidation Savings Calculator
What is a High Cost Loan Calculator?
A High Cost Loan Calculator is an essential financial tool designed to expose the true expense of short-term, often predatory, lending products. These loans—such as payday loans, auto title loans, and some short-term installment loans—frequently advertise low periodic rates (e.g., $15 per $100 borrowed) that obscure the massive cost when annualized.
The primary function of this calculator is to convert the simple, periodic charges and fees into a standardized **Annual Percentage Rate (APR)**. This conversion provides a transparent, apples-to-apples comparison against traditional credit products like credit cards or conventional bank loans, often revealing effective APRs in the triple digits (300% to 700% or more).
By quantifying both the total repayment amount and the extreme APR, the tool empowers consumers to make informed decisions and better seek less expensive alternatives before entering a debt cycle.
How to Calculate High Cost Loan Cost (Example)
Follow these steps to calculate the cost and APR for a $500 loan with a 15% rate per 14-day period, plus a $25 upfront fee, over 2 periods:
- Determine Total Interest: $500 (Principal) × (15% / 100) × 2 (Periods) = $150.00
- Calculate Total Cost (Finance Charge): $150.00 (Interest) + $25.00 (Fees) = $175.00
- Find Total Loan Term in Days: 2 (Periods) × 14 (Days per Period) = 28 Days
- Calculate Effective APR:
($175.00 / $500) / (28 Days / 365 Days) ≈ 0.35 / 0.0767 ≈ 4.56
APR = 4.56 × 100% = 456%
Frequently Asked Questions (FAQ)
Is the APR from this calculator exactly what my lender reports?
This calculator provides a very close approximation (Effective APR) based on standard simple interest. While official lender calculations may vary slightly due to complex compounding rules or specific state laws, this result is highly accurate for comparing the astronomical true cost of high-interest loans.
Why is the APR so high for short-term loans?
The APR is high because you are paying a significant finance charge (interest and fees) for a very short duration. The APR formula annualizes this short-term charge, magnifying the effective rate over a full year to show the true cost of borrowing.
What is the difference between Periodic Rate and APR?
The Periodic Rate is the interest charged for a specific, often short, interval (e.g., 10% per week). The APR (Annual Percentage Rate) is the standardized rate showing the full cost of the loan (including fees) expressed as an annual percentage, allowing consumers to compare different loan products fairly.
What should I do if my calculated APR is above 100%?
An APR significantly above 36% is considered extremely high. You should seek lower-cost credit alternatives immediately, such as credit union loans, local community assistance programs, or negotiating a payment plan with creditors, as high-cost loans often lead to a cycle of debt.