Journal / Essay

The Math of the Payday Loan

The borrowed-time and overdraft pieces in this journal covered credit cards and bank fees. This is the product built specifically for people those two options have already failed — and the one whose math is the most openly hostile of the three.

And Then You're Dead · August 2026 · 3 min read

A payday loan is marketed as simple: borrow a few hundred dollars, pay a flat fee, settle the whole thing when the next paycheck lands. The fee looks small in isolation. Annualized the way every other form of credit is required to disclose, it isn't.

The Rate

A standard structure is $15 in fees per $100 borrowed over a two-week term. Expressed as an annual percentage rate, the way a mortgage or credit card is legally required to be quoted, that number stops looking like a convenience fee.

Colorado, which does cap payday lending, still sees an average APR around 129% — itself far above what any other consumer credit product is allowed to charge. The states with no cap are where the number climbs into the hundreds.

What "Short-Term" Actually Means

The entire model depends on the loan being paid off in one cycle. The government's own research on the product found that's not what usually happens.

The CFPB found that 80% of payday loans are rolled over or reborrowed within 14 days of the original loan.

A product that four out of five customers can't close out on schedule isn't functioning as a short-term bridge for most of the people using it. It's functioning as a recurring fee, charged every time the original amount gets rolled into a new term.

The Total

Multiplied across the 30 states that allow this kind of lending, the recurring-fee model adds up to a specific, measured number.

Nearly 100,000 formal complaints about payday and similar short-term loans have been filed with the Consumer Financial Protection Bureau since 2011. The product remains legal, widely available, and — in the roughly 20 states with no meaningful rate cap — essentially unconstrained in what it can charge someone with no better option that week.

And Then You're Dead

Every other piece in this journal about debt is at least nominally optional in the moment — the credit card, the missed rent, the overdraft. A payday loan is what's left after those options are gone, priced at a rate no other lender is permitted to charge, structured so that a supermajority of borrowers can't close it out in one cycle. That's not a design flaw. Four out of five rollovers is the business model working as intended. That's the plan. That's the math.

That's it. That's the whole thing.

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