How Payday Loans Work, and Why the Fees Spiral (With Maths)
A payday loan is a small loan you repay in a few weeks, with a fee for every €100 you borrow. It spirals when you can’t repay on time: you pay the fee again to push the loan back, and you still owe the full amount.
How do payday loans work?
Payday loan is a small, short loan, usually meant to be repaid on your next payday, with a fixed fee instead of a monthly rate.
The US consumer protection agency, the FTC, describes the usual shape. Loans are often $500 or less. They must be repaid in two to four weeks. If you don’t repay on time, the lender can take the money from your account.
The price is a fee per €100. The FTC says lenders usually charge between $10 and $30 for every $100 borrowed.
Why does a small fee cost so much?
Because the fee is for a very short time.
A fee of 15% for two weeks sounds small. But a year has about 26 two-week periods. The FTC says a fee of $15 per $100 on a two-week loan equals an APR of 391%.
(Why APR shows this so clearly: see APR explained and monthly vs yearly rate.)
What is a rollover?
Rollover means paying only the fee on the due date and moving the loan to a later date, for a new fee.
The FTC says many lenders let you extend the due date. You pay the fee that is due, plus a new fee. The amount you borrowed stays the same.
This is the spiral. Each rollover costs a full fee. None of it reduces the loan.
What does this look like with real numbers?
Say you borrow €300 for two weeks. The fee is €15 for each €100. This is an example fee, in the middle of the FTC’s range.
Step 1. The fee: 300 ÷ 100 × 15 = €45.
Step 2. On the due date you owe €345. You can’t pay it all. So you pay the €45 fee and roll the loan over.
Step 3. Two weeks later, you owe €345 again. You roll it over again.
Here is what happens if you roll it over 4 times, and then repay:
| Rollovers | Weeks | Fees paid | Still owe |
|---|---|---|---|
| 0 | 2 | €45 | €300 |
| 1 | 4 | €90 | €300 |
| 2 | 6 | €135 | €300 |
| 3 | 8 | €180 | €300 |
| 4 | 10 | €225 | €300 |
After 10 weeks you have paid €225 in fees. That is 75% of what you borrowed. You still owe the €300. To clear it, you pay €525 in total.
Two more rollovers and the fees pass the loan itself: 7 fees of €45 is €315.
The CFPB’s research matches this. It found that borrowers who renew six times or more, at a typical fee, pay more in fees than the loan they took.
The APR, in words: divide the fee by the amount borrowed. Divide by the number of days. Multiply by 365. Then multiply by 100.
For this loan: 45 ÷ 300 ÷ 14 × 365 × 100 = about 391%.
For comparison, the same €300 on a card at 19.9% for 10 weeks would cost about €11 in interest, as a simple estimate (300 × 0.199 × 70 ÷ 365).
How common is the spiral?
Very common, at least in the one large study we can point to.
In March 2014, the US consumer regulator, the CFPB, published research on payday loans. It found:
- More than 80% of payday loans were rolled over or renewed within 14 days.
- About half of all loans went to people in a run of ten or more loans in a row.
This is not about being bad with money. A loan due in two weeks is hard to repay in full when money was already tight.
How do you get out of a payday loan spiral?
Start with the loan you have. Don’t take a new loan to repay the old one. MoneyHelper, a UK government-backed service, gives the same advice.
Talk to the lender before the due date. Ask for a repayment plan you can afford.
Look for free or low-cost debt advice. The FTC says non-profit groups in the US offer credit guidance at no or low cost. Look for a similar non-profit or government-backed service where you live.
Then look at the full picture. List every debt and its cost. The highest-cost debt usually comes first. (See the never-ending debt trap.)
Do this today (10 minutes)
- Find your loan amount, fee and due date. Work out the fee per €100.
- Write down how many times you have rolled it over, and the total fees so far.
- Search for free or low-cost debt advice where you live and book a call before the next due date.
Nada does this maths for you. Add each debt, see what it really costs, and plan your way out. Get Nada
FAQ
How much does a payday loan cost? It is usually a fee for each €100 you borrow. The US consumer protection agency, the FTC, says lenders usually charge $10 to $30 per $100. At €15 per €100, a €300 loan costs €45 for two weeks. Over a year, that equals an APR of about 391%.
What does rolling over a payday loan mean? It means you pay only the fee on the due date and push the loan back a few weeks. You still owe the full amount, and a new fee is added. Each rollover costs the same fee again, so the cost grows fast while the debt itself does not shrink.
How many people roll over payday loans? Many do. In a 2014 study of the US market, the CFPB found more than 80% of payday loans were rolled over or renewed within 14 days. It also found about half of all loans went to people taking ten or more loans in a row.
What should I do if I can’t repay a payday loan? Contact the lender before the due date and ask about a repayment plan. Try not to take a new loan to repay the old one. Look for free or low-cost debt advice from a non-profit or government-backed service where you live. They can help you plan and talk to lenders.
Sources
Read in October 2026.
- CFPB: CFPB finds four out of five payday loans are rolled over or renewed (March 2014)
- FTC: What to know about payday and car title loans
- MoneyHelper: What you need to know about short-term, or payday, loans
Written by the Nada team. Reviewed October 2026.
This is general information, not personal advice.