A payday loan is a small, short-term loan with a high cost. FCA rules limit that cost, but the risks are still real.
Need to know
- Payday loans are a type of high-cost short-term credit, usually for small amounts over weeks or a few months.
- Lenders must be authorised by the Financial Conduct Authority and check that you can afford to repay.
- An FCA price cap limits interest, fees and the total you can be charged.
- Repayments are often taken automatically from your debit card through a continuous payment authority.
Payday loans are designed to cover a short gap until your next payday. In the UK they fall under the Financial Conduct Authority’s (FCA) rules for high-cost short-term credit, which set strict limits on how they’re sold and what they cost.
The basics
- Amounts: usually small, often a few hundred pounds.
- Terms: from a few weeks to a few months; some are repaid in one go, others in instalments.
- Cost: high compared with most credit, but capped by the FCA.
- Approval: fast, often the same day, after affordability and credit checks.
How a typical loan runs
- You apply online and the lender checks your credit file, income and spending.
- If approved, the money is paid into your bank account.
- On each due date, the lender usually collects repayment from your debit card using a continuous payment authority.
- The loan ends when you’ve repaid the amount borrowed plus interest.
What it can cost
The FCA price cap limits interest and fees to 0.8% a day of the amount borrowed, default fees to £15 and the total cost to no more than the amount you borrowed. Our guide to the price cap works through examples.
| You borrow | For | Maximum interest and fees if repaid on time |
|---|---|---|
| £100 | 30 days | £24 |
| £200 | 30 days | £48 |
| £300 | 30 days | £72 |
Important
Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Checks before you borrow
- Is the lender on the FCA’s Financial Services Register?
- Can you repay on the due date and still pay rent, energy and council tax?
- Have you looked at cheaper alternatives, such as a credit union loan?
Helpful step
Never pay an upfront “admin” or “insurance” fee to get a loan. Genuine lenders don’t ask for money before lending, and requests like this are a common scam.
Before you decide
A payday loan can cover a genuine one-off gap if you’re sure you can repay on time. It’s rarely the right answer for regular shortfalls, because borrowing again next month adds to the problem. If you’re already struggling, our guide to struggling to repay explains where to get free help.
Your questions answered
Do payday loans affect my credit file?
Yes. Applications usually leave a search on your credit file, and the loan and your repayments are recorded. Some mortgage lenders look closely at recent payday borrowing.
How quickly can I get the money?
Often on the same day once approved. Speed can make it tempting to borrow without comparing other options first.
How do I know a lender is genuine?
Check the Financial Conduct Authority’s Financial Services Register. A genuine lender is authorised and won’t ask for a fee before lending.
This guide is general information, not financial advice. Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk. We don’t arrange loans or work with lenders. Before borrowing, check the lender is authorised on the FCA register, and consider free debt advice from MoneyHelper, StepChange, National Debtline or Citizens Advice.