To begin with, APR, an initialism for the Annual Percentage Rate, is not the same as an interest rate. While the interest rate on a payday loan, expressed in percentage, gives you an idea of the annual cost of borrowing that cash (without reference to other fees), the APR is the annual cost plus all other fees charged on that loan, also expressed in percentage. Therefore, an APR gives a broader picture of the total cost of a loan.
The fees reflected in the APR may include origination fees, discount points, closing costs, etc. Generally, the higher the APR, the higher the cost of the loan and how much you are likely to pay over the life of the loan. So the payday loan cost should be compared based on the APR rather than the interest rate.
Let’s make a proper comparison. If a payday lender charges $12 on every $100 borrowed, their interest rate is 12%. However, if they want the cash paid back in as little as two weeks, their APR may be calculated as almost 320% because of the short term. It's calculated as the daily interest cost ($12 divided by 14 days) times the total number of days in a year, 365 days, which gives about 313%.
When two payday loan providers offer the same nominal rates and monthly payments but different APRs, the best value is typically the one with a lower APR. This is because they require fewer upfront fees.
According to the federal Truth in Lending Act (TILA), all lenders must give specific disclosures about their APRs, nominal interest rate (advertised interest rate), and other important loan terms. You are not legally obligated on the loan if these are not clearly stated. You may also file a complaint with your state’s regulator, its attorney general, or the Consumer Financial Protection Bureau (CFPB).