What Does APR Mean and How Does That Impact my Debt?

If I borrow $400 with a 400% APR, how much will I pay in total?

If you’ve looked closely at a loan, credit card, or debt product, you’ve likely seen the acronym APR. Short for annual percentage rate, an APR is the quick, uniform way lenders communicate their credit products’ costs. But how does an APR work, and what does it mean for your bottom line as a borrower? Here’s what you should know.

What is an APR, and how is it tied to interest debt?

An annual percentage rate (APR) tells you how much of a loan amount you will pay in interest and fees over the course of one year — even if the loan has a term that is shorter or longer than a year.

For example, say you borrow $400 at 400% APR.[1] Here’s how your repayments would vary based on different term lengths:

Figure 1-1 For month 1 = [(400%/365) x (365/12) x$400] + $400

APRs are a standardized way to disclose the costs of loans, credit lines, and other credit products, making it easier for you to understand offers and compare them. You’ll see APRs on any interest-based credit you’re considering because lenders have to include them in their disclosures per the Truth in Lending Act (TILA) of 1968.[2]

The problem with APR-based debt

An affordable APR is about 10% or less, but low rates are typically reserved for long-term loans and borrowers with good-to-excellent credit. Everyone else will pay a higher price tag, and, in some cases, that price tag has no limits. For example, in Texas, the typical payday loan APR is 664%! How does that happen? While about half of the U.S. states have limited high APRs on payday loans, deeming them a predatory lending practice, the other half has no protections in place.

Unfortunately, the typical payday loan APR is 664% in Texas; the highest APRs are commonly seen on short-term credit products like payday loans designed for people with low to fair credit. When you need affordable financing the most, you are often are charged with higher rates. As a result, it’s common for borrowers with high APR loans to have trouble making the repayments. While lenders may offer extensions(see figure 1.1), those come with — you guessed it – even more fees.

So, where else can you turn if you need quick cash to make ends meet? What if we told you, you didn’t have to take on a loan, charge your credit card, or take on any interest debt?

Earned wage access: An affordable alternative

If you landed on this blog, it's more than likely your employer offers this employee benefit. Earned wage access can help by providing affordable on-demand access to your wages. Instead of waiting for payday or getting an expensive payday loan, you can log in to our app, see the wages you’ve earned that haven’t been paid yet, and request to receive payment early for a small flat fee (similar to an ATM). The amount you owe will be deducted from your next paycheck, and you can get back on track without worrying about extensions or expensive fees.


If you’re an employee who wishes your employer offered earned wage access, let us know, and we’ll get in touch!


[1] Average APR for states in the South that don't have protection against payday loans: NM, TX, OK, LA, MS, AL, & FLM.    Leonhardt, "Payday loans can have interest rates over 600%—here’s the typical rate in every U.S. state," CNBC Make It, 16 Feb 2021.    [Online]. Available:    https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loan-rate-in-each-state.html.

[2] The Daily    Journal of the United States Government, "Federal Register National    Archives," [Online]. Available:    https://www.federalregister.gov/truth-in-lending-regulation-z-.