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The truth is that a large portion of payday customers end up in dire financial straits because of these seemingly innocuous loans. Hereâs what happens. The average payday loan charges a fee of about $15 for every $100 borrowed. That might sound like an interest rate of 15%, but thatâs the fee for a two-week loan. On an annualized basisâwhich is how most people think about interest rates, or shouldâthat translates into a rate of 391%.
The median loan recipient ends up paying $458 in fees and an effective interest rate of 130%. A representative for Williams defended the tweet, telling MONEY by phone that Williams was specifically referring to loans that are paid off within two weeks, and not payday loans in general.