The Real Price of a Loan: High-Cost Traps and Safer Options

Lenders like to talk about the fee or the payment: "Only $15!" or "Just $50 a week!" But the fee alone does not tell you if a loan is cheap. You need two numbers. The APR (annual percentage rate) is the yearly cost of a loan, including interest and most fees, shown as a percent. It lets you compare a two-week loan and a one-year loan in the same way. The total of payments tells you how many dollars you will pay in all.

Turn a fee into an APR

1. Divide the fee by the amount you borrow.
2. Multiply by 365, then divide by the number of days in the loan.
3. Multiply by 100 to get a percent.

$15 ÷ $100 × 365 ÷ 14 days × 100 = about 391% APR

A fee of $15 for each $100 is common for payday loans, the Consumer Financial Protection Bureau (CFPB) says. That APR is more than 15 times the APR of a credit card that charges 25%.

High-cost products to know

• Payday loan: a small loan due on your next payday. Fees often run from $10 to $30 for each $100, depending on state law.
• Car title loan: a short loan, often 15 or 30 days, where you give the lender your car title. The Federal Trade Commission (FTC) says monthly fees can be as high as 25%, about 300% APR. If you cannot pay, you can lose the car.
• Online installment loan: small monthly payments, but the APR can be 100% or more.
• Rent-to-own, buy now, pay later, and pay advance apps: see the section below.

Each place in our area limits what lenders can charge on most consumer loans. Some products, such as credit cards, follow other rules.

• DC: The law generally limits interest to 24% a year, and payday loans are illegal in DC, according to the DC Office of the Attorney General. The Attorney General has sued online lenders that charged DC residents more.
• Maryland: For loans of $2,000 or less, licensed lenders can charge up to 2.75% a month on the first $1,000. That is 33% a year. Most consumer lenders must have a Maryland license.
• Virginia: Since the Fairness in Lending Act took effect on January 1, 2021, short-term loans can be up to $2,500 and usually last 4 to 24 months. The lender can charge up to 36% interest plus a monthly fee of 8% of the loan or $25, whichever is less. You can have only one of these loans at a time, and online lenders need a Virginia license too.

Some online lenders ignore these limits. They may say they follow the laws of another state, a tribe, or a partner bank. In Virginia, a short-term loan made without a license is void, which means the lender has no right to collect it. If you already have a loan like this, talk to legal aid before you stop paying.

Check a lender's license before you borrow

1. Find the lender's full legal name in the loan agreement or at the bottom of its website.
2. Maryland: search at NMLS Consumer Access, or call the Office of Financial Regulation at 410-230-6077.
3. Virginia: use the State Corporation Commission's Verify a License page, or call 804-371-9657.
4. DC: ask the Department of Insurance, Securities and Banking (DISB) at 202-727-8000, or call the Attorney General's Consumer and Tenant Response team at 202-442-9828.
5. If you cannot find a license, do not borrow. Report the offer.

Rent-to-own. Ana sees a $600 TV at a rent-to-own store for "$20 a week." To own it, she must pay for 78 weeks.

$20 × 78 weeks = $1,560, which is 2.6 times the $600 store price

Rent-to-own is set up as a rental, not a loan, so you often will not see an APR. If you miss a payment, the store can take the item back, and you can lose what you paid. If Ana saves $20 a week instead, she will have the $600 in 30 weeks.

Buy now, pay later (BNPL). These plans split a purchase into a few payments, often four over six weeks. A plan can be free if you pay on time. The danger is using several plans at once. Payments taken on the same days can empty your account and cause overdraft fees. Some BNPL companies report payments to credit bureaus, so a missed payment can hurt your credit. Return and dispute rules can be different from a credit card, so read the terms first.

Pay advance apps. Mei, in Columbia Heights, can get $100 from an app before payday. It is free if she waits a few days, or $4.99 to get it now. She repays it from her paycheck one week later.

$4.99 ÷ $100 × 365 ÷ 7 days × 100 = about 260% APR

A "tip" is also a cost of borrowing, even if the app calls it optional. In 2024, the DC Attorney General sued one pay advance app. The lawsuit said that, with its fast-delivery fees, the app's instant advances cost more than 300% APR on average. Using an app every payday also makes each paycheck smaller, so you may need another advance.

• Ask for a payment plan. Many utility companies, hospitals, landlords, and repair shops will split a bill if you ask before the due date.
• Ask your employer. Some employers give a pay advance at no cost.
• Ask a credit union for a small loan. Many let you join if you live or work in a certain area.
• Use your emergency fund, then refill it. See Start an emergency fund.
• Call 211 in DC, Maryland, or Virginia for free help finding local aid with rent, utility bills, and food.

Credit union Payday Alternative Loans

According to the National Credit Union Administration (NCUA), in 2026 federal credit unions can offer Payday Alternative Loans (PALs) that:

• Charge an interest rate of up to 28%, plus an application fee of no more than $20.
• Lend $200 to $1,000 for 1 to 6 months to people who have been members for at least one month, or up to $2,000 for 1 to 12 months with no required waiting period.
• Cannot be rolled over. One person can get no more than three in six months.

Not every credit union offers PALs, so ask. Some credit unions accept an ITIN (Individual Taxpayer Identification Number) instead of a Social Security number.