I took a 100% interest rate payday loan to help a friend with $1,500: am I making a huge mistake?

A $1,950 payday loan at 100% APR required $88 payments every two weeks. The borrower gave $1,500 to a friend for attorney fees and vehicle registration and kept $450 for a child’s daycare. The loan’s total repayment would reach $5,223, and the friend agreed to split the payments. Only one of six scheduled installments had been paid since February. The main lesson is that a 100% APR loan is rarely the cheapest option for someone with income and a bank account. A credit card at about 30% APR could cover the same $1,500 portion with similar cash outflow, paying off the balance in under a year and costing only a few hundred dollars in interest rather than thousands. The total loan cost equals total payments minus principal, regardless of installment size.

"“100% interest rate for a girl usually doesn't come out of nowhere.” Liam had taken out a $1,950 payday loan at 100% APR to help a female friend pay legal bills. He handed $1,500 to his friend for attorney fees and vehicle registration, kept $450 for his child's daycare, and signed paperwork that requires $88 payments every two weeks. By the time the note is satisfied, he will have paid $5,223. The friend agreed to split the payments, but since February, out of six scheduled installments, she has sent exactly one $44 payment."

"“You can get funded like that anywhere. What do you mean? Just look up loan. Or you could have put it on a credit card at a 30% interest rate for $1,500,” Hammer told Liam. The point is that a 100% APR payday loan is not the only way to get money quickly. With a job and a bank account, other borrowing options can provide similar funding timing while charging far less. The $1,500 portion sent to the friend is the key comparison for total cost."

"Run the math on the $1,500 portion that went to the friend. At the payday lender's terms, that money grows into a multi-thousand-dollar obligation over the loan's life. On a credit card at 30% APR, carrying $1,500 and paying $88 every two weeks (the same cash outflow Liam already committed to) extinguishes the balance in under a year and costs a few hundred dollars in interest, not thousands. The cash-flow burden is identical. The total cost differs by thousands."

"“The core mechanic readers miss when they're panicked: the price of a loan equals the total of all payments minus the principal, regardless of how small each bi-weekly installment feels.” On Liam's note, that price is $3,273 on top of the $1,950 he borrowed. On a 30% credit card carrying the same balance for a year, the price is closer to $250. Same emergency, same day funding, dramatically different damage."

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