Find out the real APR, total repayable amount and FCA cap compliance for any payday loan — plus cheaper alternatives for short-term borrowing in the UK.
| Option | Typical APR | Cost for same loan |
|---|
Since January 2015, the Financial Conduct Authority has imposed strict limits on payday loan costs. These rules protect borrowers from spiralling debt and apply to all FCA-authorised high-cost short-term credit lenders.
| FCA Rule | Limit | Example (£300 loan) |
|---|---|---|
| Daily interest and fee cap | 0.8% per day maximum | Max £2.40/day = £67.20 for 28 days |
| Total cost cap | 100% of original loan | Max charges of £300 on a £300 loan |
| Default fee cap | £15 maximum | Cannot charge more than £15 if you miss a payment |
| Rollover limit | 2 rollovers maximum | Cannot keep extending beyond 2 extensions |
If you are considering a payday loan due to financial difficulty, free, confidential advice is available from:
Since January 2015, the FCA has capped payday loan costs at: 0.8% per day maximum interest and fees; a total cost cap of 100% (you can never owe more than double what you borrowed); and a default fee cap of £15. These rules apply to all FCA-regulated high-cost short-term credit lenders.
Payday loan APRs are typically 300–1,500% representative APR. A common 28-day £100 loan costing £24 in interest has an APR of approximately 1,281%. The APR figure looks alarming because it reflects what you would pay if the loan ran for a full year — payday loans are designed for days, not years. However, rollover fees can trap borrowers into spiralling debt.
Yes, payday loans are legal in the UK but strictly regulated by the FCA. All payday lenders must be FCA authorised, follow responsible lending rules, and adhere to the price cap. Unlicensed lenders (loan sharks) are illegal and dangerous — only borrow from FCA-regulated lenders, which you can verify at register.fca.org.uk.
Cheaper alternatives include: credit union loans (typically 3% per month = ~42% APR), an authorised overdraft (39.9% EAR — still far cheaper than 1,281% APR), a 0% money transfer credit card, a budgeting loan from the government (0% interest for benefits claimants), borrowing from family or friends, or a salary advance scheme through your employer.
If you cannot repay a payday loan, the lender must offer you a repayment plan. Under FCA rules, lenders cannot charge excessive default fees (capped at £15) and cannot roll over your loan more than twice. Contact the lender immediately and ask for a repayment arrangement. Free debt advice is available from StepChange, National Debtline, or Citizens Advice.
Payday loan APR uses compound interest: APR = ((1 + daily_rate)^365 − 1) × 100, where daily_rate = total_interest / loan_amount / days. For example, a £100 loan for 14 days with a £10 charge: daily rate = 10/100/14 = 0.714% per day. APR = ((1.00714)^365 − 1) × 100 = 1,258% APR.
Many payday lenders offer loans to people with bad credit, using affordability assessments rather than just credit scores. However, FCA rules require lenders to check you can afford the repayments. Taking out a payday loan when you're already in financial difficulty is risky — consider free debt advice first.
There is no statutory maximum payday loan amount in UK law, but most lenders cap loans at £1,000–£1,500 for new customers, rising to £2,000 for returning customers with a good repayment history. The FCA's affordability rules mean lenders must ensure borrowers can repay without significant hardship.
FCA rules cap payday loan rollovers at two. A rollover means extending the loan for another term and paying additional interest. After two rollovers, you must either repay the loan or be given a repayment plan. Many lenders now refuse to offer rollovers at all.
Yes, having a payday loan on your credit file can significantly harm a mortgage application. Many high street lenders automatically decline applications from borrowers who have had payday loans in the last 12–24 months. If you're planning to apply for a mortgage, avoid payday loans entirely and seek alternative short-term borrowing.
No — a payday loan is unsecured short-term credit, while a logbook loan is secured against your vehicle. With a logbook loan, the lender can repossess your car if you don't repay. Both are high-cost credit types regulated by the FCA, but logbook loans are even riskier because you could lose your vehicle.
The FCA total cost cap means that all interest, fees, and charges on a payday loan cannot exceed 100% of the original loan amount. So if you borrow £200, you can never be asked to repay more than £400 in total (£200 original + maximum £200 in charges). This cap applies even if the loan is rolled over or you default.