It cannot be ignored that some lenders of payday loans charge exorbitant interest rates and additional service fees for cash advances. It is true that many lenders do extend a finance charge to the borrower that can amount to an additional $15 to $30 for every $100 borrowed. However, when critics of payday loans state that a payday loan's APR (annual percentage rate) can be up to 400 percent, that can be slightly misleading.

An APR represents the total amount of interest and additional fees the loan would accrue over a period of one year if the borrower had decided to 'roll over' the loan - or extend it - 26 times (as the typical term period for a payday loan is two weeks).

Renewing a loan 26 times may seem slightly unrealistic for the average borrower. After all, payday loans are available to consumers who need it in times of an unexpected financial predicament, such as paying the costs of a medical emergency, and it's generally expected that the borrower pay it off completely before taking out another one. Some states don't even allow borrowers to roll over their loans more than once or twice, thereby preventing the possibility of a person having to pay those high APRs that critics claim each loan carries.

Before entering into any payday loan agreement, however, borrowers should take due diligence to review the exact terms and charges implicated in their contract, as there may be other hidden costs to be aware of.