Understanding the True Cost of a Short-Term Loan
The sticker price on a short-term loan is rarely the whole story. Here's how to read the real number.
Published May 18, 2026 · Updated October 13, 2026 · 7 min read
Short-term loans are usually advertised by their finance charge — "$15 per $100 borrowed" — because that number looks small. But comparing that figure to a credit card or personal loan requires converting it to an annual percentage rate, or APR. Here's how to do that math yourself in under a minute.
The formula in plain terms
APR estimates what the finance charge would cost if the loan term were stretched across a full year. A two-week loan repeats roughly 26 times in a year, so even a modest-looking finance charge compounds into a very large annualized rate. The rough formula is:
APR ≈ (finance charge ÷ loan amount) × (365 ÷ loan term in days) × 100
Three worked examples
| Loan amount | Finance charge | Term | Total repayment | Approx. APR |
|---|---|---|---|---|
| $200 | $30 | 14 days | $230 | ≈ 391% |
| $300 | $45 | 14 days | $345 | ≈ 391% |
| $500 | $75 | 14 days | $575 | ≈ 391% |
Illustrative figures for education only. Your actual finance charge, term, and APR are set by the specific lender and disclosed in your loan agreement.
Why rollovers multiply the cost
If a $300 loan with a $45 finance charge is rolled over twice because you can't repay the full amount, you could pay $135 in finance charges — 45% of the original loan amount — without ever reducing what you originally borrowed. This is the single biggest driver of short-term loan costs spiraling out of control, and it's why we recommend only borrowing an amount you're confident you can repay in full on the first due date.
Four questions to ask before signing
- What is the exact APR, in writing?
- What is the total dollar amount I'll repay, and on what exact date?
- What happens, step by step, if I can't pay on that date?
- Is there a fee for paying off the loan early?