Since January 2015, the cost of a payday loan in the UK has been capped. Knowing the three limits helps you check any quote.
Need to know
- Interest and fees can’t exceed 0.8% a day of the amount borrowed.
- Default fees are capped at £15, and interest after default can’t exceed the original rate.
- In total, you can never be charged more than the amount you borrowed in interest and fees.
- The cap applies to high-cost short-term credit from FCA-authorised lenders.
The Financial Conduct Authority introduced a price cap on high-cost short-term credit on 2 January 2015. It has three parts, and every payday loan from an authorised lender must stay within all of them.
The three limits
| Limit | What it means |
|---|---|
| Initial cost cap | Interest and fees can’t exceed 0.8% a day of the amount borrowed |
| Default fee cap | Fees for missing a payment are capped at £15; interest after default can’t exceed the original rate |
| Total cost cap | Interest and fees together can never exceed 100% of the amount borrowed |
Worked examples
On time: borrow £200 for 30 days. The most you can be charged is 0.8% × 30 days × £200 = £48, so you’d repay at most £248.
Late: if you miss the payment, the lender can add a default fee of up to £15 and keep charging interest at no more than the original rate.
Worst case: however late you are, total interest and fees on a £200 loan can’t exceed £200. You’d never repay more than £400 in total.
Remember
The total cost cap applies across the whole loan, including any rollovers or refinancing. See our guide to rollovers and extensions.
What the cap doesn’t do
- It doesn’t make borrowing cheap: 0.8% a day adds up quickly.
- It doesn’t cover unauthorised lenders. Illegal lenders ignore the rules, so always check the FCA register.
- It doesn’t stop late payments damaging your credit file.
Important
Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Helpful step
Ask for the total amount repayable in pounds before you agree, and compare it with the cost of alternatives such as a credit union loan.
Using the cap as a check
When you’re quoted a cost, work out 0.8% a day of the amount borrowed for the loan term. If the quote is higher, something’s wrong. If a lender has charged above the cap, our guide to complaints and the Financial Ombudsman explains how to put it right.
Your questions answered
Does the cap apply to rollovers?
Yes. The total cost cap covers the whole loan, including any rollovers or refinancing, and rollovers are limited to two.
Does the cap mean a payday loan is cheap?
No. The cap stops the worst charges, but borrowing at up to 0.8% a day is still very expensive compared with most other credit.
What if a lender charges more than the cap?
Complain to the lender, and if you’re not happy with the reply, to the Financial Ombudsman Service. Charges above the cap shouldn’t be applied.
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.