Payday loans: why an APR of 1000% is not a typo
We don't earn from payday loans. They are not in our rankings and we have no partnership agreements with the companies behind them, so we can say something no loan comparison site will tell you: an APR of 1023.86% is not a typo. It is the result of a calculation we are about to do in front of you.
Four payday loans, four APRs. All calculated
Let's start with the numbers, because the rest of this article just explains them. We
calculated the APRs (RRSO in Polish) below with the irr() function from the
js/finance.js engine - the same one that powers
our APR calculator and calculates the APR of
a mortgage. Same formula, same code, different inputs.
| You borrow | For | Fee | You repay | APR |
|---|---|---|---|---|
| PLN 2,000 | 60 days | PLN 400 | PLN 2,400.00 | 203.17% |
| PLN 1,000 | 30 days | PLN 200 | PLN 1,200.00 | 819.12% |
| PLN 1,000 | 30 days | PLN 220 | PLN 1,220.00 | 1,023.86% |
| PLN 1,000 | 14 days | PLN 100 | PLN 1,100.00 | 1,099.96% |
Look at the last row. PLN 100 for two weeks. Sounds like a trifle. Over a year it is 1,099.96% - more than a payday loan with a fee twice as high, just spread over 30 days. The shorter the period, the more brutal the multiplier.
The advertising line "the fee is only 10% of the amount borrowed" refers to one month. Repeated twelve times a year it gives (1.10)12 - 1 = 213.84%. Nobody lied to you. They simply gave you the number in a different unit of time and counted on you not noticing.
Where a thousand per cent comes from. The maths in three lines
APR is an annual rate. A payday loan lasts 30 days. The whole secret lies in that one sentence.
A year has 365 days, so it holds 365 ÷ 30 = 12.17 thirty-day periods. The cost does not add up linearly, it compounds: in the second month the fee is charged on an amount that has already grown. It is the same compound interest we write about in the context of saving, only turned against you.
n - length of the period in days (30)
For a 20% fee per 30 days: (1.20)12.17 - 1 = 819.12%
For a 22% fee per 30 days: (1.22)12.17 - 1 = 1,023.86%
A simplified version you can check on your phone's calculator: a fee of 20% a month is (1.20)12 - 1 = 791.61% a year. Our engine shows 819.12% because it calculates precisely - on a 365-day year, which holds 12.17 thirty-day periods, not 12. But the order of magnitude is already clear from this mental approximation.
A common complaint from the industry: "nobody takes out a payday loan for a year, so quoting an annual rate is unfair". The argument is false for two reasons.
First, APR is not a forecast of cost - it is a unit of measurement. Just as we give speed in km/h even when the journey takes ten minutes. Without a common unit you cannot compare a payday loan with a cash loan, and that is exactly the point.
Second, repayment statistics show that payday loans are very often rolled over for many months. The annual APR is then not an abstraction. It is the bill that arrives.
The anti-usury law: there is a cap, but not where you think
Polish law limits the cost of consumer loans in two independent ways.
1. Maximum interest
The Polish Civil Code says contractual interest may not exceed twice the sum of the NBP (National Bank of Poland) reference rate and 3.5 percentage points. In practice that is somewhere in the teens per cent a year. So loan companies have no way to make money on interest alone - and they don't try.
2. Maximum non-interest costs of credit (MPKK)
All of a payday lender's profit sits in commissions and fees. The Consumer Credit Act caps them with the formula:
n - repayment period in days
In addition, non-interest costs may not exceed 45% of the loan amount, and loans shorter than 30 days are subject to a separate, stricter limit.
Let's plug in the numbers for a PLN 1,000 loan:
| Repayment period | Maximum non-interest costs | As % of the amount |
|---|---|---|
| 30 days | PLN 108.22 | 10.8% |
| 60 days | PLN 116.44 | 11.6% |
| 90 days | PLN 124.66 | 12.5% |
| 180 days | PLN 149.32 | 14.9% |
| 365 days | PLN 200.00 | 20.0% |
| 730 days | PLN 300.00 | 30.0% |
And this is the crux. The law caps costs in PLN. It does not cap the APR. Take a loan tailored exactly to the statutory maximum: PLN 1,000 for 30 days, non-interest costs of PLN 108.22 (the maximum), interest of PLN 14.79 (at 18% a year, close to maximum interest). You repay PLN 1,123.01.
Such a loan stays within every limit Polish law sets. No authority will challenge it. Its APR is 310.20%.
That is why the line "our offer complies with the anti-usury law", with which loan companies respond to criticism, is true and completely irrelevant. Legal does not mean cheap. The statutory limit is not a recommendation - it is a ceiling the industry simply drove up to and parked under.
You can see it with the naked eye in the price lists: payday loan fees are not set by the market, they are calculated from the MPKK formula. Companies charge exactly as much as they are allowed to, down to the last grosz. Price competition in this segment practically does not exist - they compete on payout speed and "your first loan for free", whose only purpose is to get you into the system.
The rollover spiral: how PLN 1,000 becomes PLN 8,916
A payday loan rarely kills you the first time. What kills you is rolling over - taking a new loan to repay the previous one. The mechanism is banal: you don't have PLN 1,200 to repay, so you borrow PLN 1,200, and after 30 days you owe PLN 1,440.
Below is the same compound interest as in the
article on saving, with a fee of
20% for every 30 days. Numbers calculated with the compound() function from our
engine:
| Rollover | After how many days | Debt to repay | Total fees paid |
|---|---|---|---|
| start | 0 | PLN 1,000.00 | PLN 0.00 |
| 1 | 30 | PLN 1,200.00 | PLN 200.00 |
| 2 | 60 | PLN 1,440.00 | PLN 440.00 |
| 3 | 90 | PLN 1,728.00 | PLN 728.00 |
| 4 | 120 | PLN 2,073.60 | PLN 1,073.60 |
| 5 | 150 | PLN 2,488.32 | PLN 1,488.32 |
| 6 | 180 | PLN 2,985.98 | PLN 1,985.98 |
| 8 | 240 | PLN 4,299.82 | PLN 3,299.82 |
| 10 | 300 | PLN 6,191.74 | PLN 5,191.74 |
| 12 | 360 | PLN 8,916.10 | PLN 7,916.10 |
After six months the PLN 1,000 loan has grown to PLN 2,985.98. After a year - to PLN 8,916.10. And now the worst part: in that whole year you were never once late with a payment. Every rollover was "on time". Formally you are a model customer.
"Extending the repayment date", "refinancing with a partner", "a new offer just for you" - these are all names for the same operation. If you are taking money to pay back previous money, you are in the spiral, whatever the document you are signing is called.
There is one warning sign and it is very simple: the second rollover. The first happens to anyone. The second means the trap has already closed and will not open by itself.
What to do instead. Four routes, all cheaper
1. A cash loan from a bank
Let's compare the same need fairly: PLN 5,000 for 12 months. On the left, a loan company squeezing out the statutory maximum of non-interest costs (PLN 1,000) and adding 18% interest. On the right, an ordinary cash loan at 12%.
| Parameter | Loan company | Bank cash loan |
|---|---|---|
| You receive | PLN 5,000.00 | PLN 5,000.00 |
| Commission / non-interest costs | PLN 1,000.00 | PLN 0.00 |
| Interest rate | 18.00% | 12.00% |
| Total interest | PLN 600.96 | PLN 330.93 |
| Monthly payment | PLN 550.08 | PLN 444.24 |
| Total cost | PLN 1,600.96 | PLN 330.93 |
| APR | 70.68% | 12.68% |
The difference: PLN 1,270.03 for exactly the same amount borrowed over exactly the same period. It is not a matter of luck or negotiation - it is the difference between an institution that lives on interest and one that lives on fees.
Before you assume the bank will turn you down: check. A PLN 5,000 cash loan with a PLN 444 monthly payment needs very modest borrowing capacity. Work it out in the borrowing capacity calculator instead of guessing - and if you want to understand how the bank calculates it, we have a separate article on that.
2. A credit card with an interest-free period
Credit cards have a bad reputation, and rightly so - but they have one feature a payday loan never has: an interest-free period, usually 50-56 days. If you repay the whole balance before the end of that period, the cost is PLN 0. Zero, not "only 10%".
The condition is strict and unforgiving: the full balance, not the minimum. A minimum payment cancels the interest-free period and starts interest from day one. But if the problem is a three-week cash-flow gap rather than a lack of money - a card is hundreds of times cheaper than a payday loan.
3. An agreement with your creditor
A very common scenario: you take a payday loan to pay an instalment, rent or a bill. Before you do, call that creditor. Splitting the arrears into instalments, moving the due date, a payment holiday at the bank - these are all solutions that cost a fraction of what a payday loan does, and very often nothing. A creditor would rather get their money back than pay for debt collection.
4. Free help that hardly anyone uses
- Municipal or district consumer ombudsman (rzecznik konsumentów) - there is one in every district, they help free of charge and can contact the company on your behalf.
- Financial Ombudsman (Rzecznik Finansowy) - handles requests for intervention with financial institutions, including loan companies.
- Consumer Federation (Federacja Konsumentów) - free legal advice for consumers, including on debt.
- UOKiK (Poland's competition and consumer protection office) - if the agreement contains unfair terms or the company uses unfair market practices.
The Consumer Credit Act gives you the right to withdraw from a loan agreement within 14 days of signing it - without giving any reason at all. All you need to do is submit a written statement (the form must be attached to the agreement).
You then return the capital borrowed plus interest for the days you actually had the money. The commission and fees must be refunded to you. With a payday loan, where almost the entire cost is exactly that commission, this means backing out within 14 days is almost free.
If you took out a payday loan yesterday and are reading this today - you still have thirteen days. It is the cheapest decision you can make today.
The price that isn't in the table: an entry in BIK
Even if you repaid the payday loan on time and didn't pay a single grosz beyond the agreement, it leaves a trace. Loan companies report to BIK (Poland's credit bureau) just like banks do.
A credit analyst looking at your report sees more than "repaid on time". They see the fact that you reached for a loan with an APR of 300% - and to a bank that signals that at some point your budget was PLN 1,000 short for a month.
In the scoring and lending policy of many banks a payday loan is treated as a red flag regardless of whether it was repaid perfectly. The data stays in BIK for 5 years, and when you apply for a 25-year mortgage, those 5 years are a very long time. It happens that a single PLN 500 payday loan from three years ago means a refusal for PLN 500,000 today.
We break down this mechanism in the article "BIK: how to check and improve your credit history".
Three sentences worth remembering
1. An APR of 1000% is not a typo. It is a correctly calculated annual rate. A 22% fee for 30 days is exactly 1,023.86% a year, and no spin will change that.
2. Legal does not mean cheap. A payday loan within every statutory limit has an APR of 310.20%. The limit is a ceiling the whole industry parks under, not a mark of quality.
3. There is almost always a cheaper way. A cash loan, a card with an interest-free period, a conversation with your creditor, withdrawal within 14 days. A payday loan is fast - and that is its only advantage, for which you pay a price many times higher.
Do the maths yourself
APR calculator
Enter the amount, the term and all the fees from your agreement. You will see the APR and the total cost in PLN. You can reproduce every number in this article here to the last grosz - the same engine calculates them. If the result scares you, it means the calculator is working correctly.
Calculate the APR of your loanBorrowing capacity calculator
Before you assume the bank will turn you down - check what cash loan you can realistically afford. It is usually more than you think.
Check your capacityDebt consolidation calculator
Already have several loans? See whether swapping them for a single loan will lower your monthly payment - and what it really costs.
Calculate consolidationRead next
- APR or interest rate? - why the interest rate doesn't tell the whole truth and how a "0%" loan can have an APR of 21.83%.
- BIK: how to check and improve your credit history - what exactly the bank sees and how long a payday loan leaves its trace there.
- Compound interest from scratch - the same mechanism that pushed the APR up to 1000% can work for you instead of against you.
All APRs in this article were calculated with the js/finance.js engine
(the functions irr(), rrso() and compound()),
following the method in the Polish Consumer Credit Act, on a 365-day year.
The payday loan scenarios are examples and do not refer to any specific company;
the 18% interest rate was taken as a value close to maximum interest,
and the non-interest costs were calculated from the statutory formula. Always check the actual terms
in the information form for your agreement. This text is for educational
purposes and is not financial advice. KredytPartner does not
work with loan companies and does not earn from payday loans.