# Payday Loans & High-Cost Credit

> How the FCA price cap limits payday and high-cost short-term lending — 0.8% a day, a £15 default-fee cap and a 100% total-cost cap — plus cheaper alternatives.

Canonical page: [/credit-borrowing/payday-and-high-cost-credit](/credit-borrowing/payday-and-high-cost-credit/) · Last reviewed: 2026-08-22

Payday loans and other high-cost short-term credit are among the most expensive ways to borrow. Since 2015 an FCA price cap has limited what lenders can charge, but the cost is still high.

## Key information

- Interest and fees are capped at 0.8% of the amount borrowed per day
- Default charges are capped at £15
- You can never be made to repay more than 100% of what you borrowed in interest, fees and charges
- It remains expensive borrowing — cheaper and free alternatives are often available

## What high-cost short-term credit is

High-cost short-term credit (HCSTC), which includes payday loans, is designed for borrowing a relatively small amount over a short period. The headline cost is very high compared with mainstream credit, which is why the FCA regulates it tightly and caps what firms can charge.

## The FCA price cap

Since 2 January 2015 an FCA price cap has applied to high-cost short-term credit. The FCA has reviewed the cap and kept it in place. It has three parts:

- Initial cost cap — interest and fees cannot add up to more than 0.8% of the amount borrowed per day
- Default cap — if you miss a payment, default charges cannot exceed £15 (interest can still be charged, but within the daily cap)
- Total cost cap — you can never have to repay more than 100% of the amount borrowed in interest, fees and charges combined

## What the cap does and does not do

The total cost cap means that even in the worst case you will not repay more than double what you borrowed. It limits the damage, but it does not make these loans cheap — 0.8% a day is far higher than mainstream borrowing. Rolling a loan over, or borrowing again to repay the last loan, is a warning sign of wider money trouble rather than a solution.

## Cheaper alternatives

Before taking high-cost credit, it is worth checking whether a cheaper option is open to you:

- A [credit union](/tools-calculators/financial-directory/credit-unions) may offer small loans at a much lower cost
- An [arranged overdraft](/credit-borrowing/overdrafts) or a [low-rate credit card](/credit-borrowing/credit-cards) can be cheaper for a short-term need
- If you receive certain benefits you may be able to get an interest-free Budgeting Loan or Budgeting Advance from the Government
- Free debt advice can help if you are borrowing to cover essentials

## Your rights

- By law, high-cost short-term lenders cannot charge more than 0.8% a day in interest and fees, cannot charge more than £15 in default fees, and cannot make you repay more than twice what you borrowed.
- Lenders must check that the borrowing is affordable and treat you fairly if you fall into difficulty.
- You can complain to the lender and escalate an unresolved complaint to the Financial Ombudsman Service free of charge.

## Official sources

- [FCA — price cap on high-cost short-term credit](https://www.fca.org.uk/firms/price-cap-high-cost-short-term-credit)
- [GOV.UK — Budgeting Loans and Budgeting Advance](https://www.gov.uk/budgeting-help-benefits)
- [Check a firm on the FCA Register](https://register.fca.org.uk)
- [Financial Ombudsman Service](https://www.financial-ombudsman.org.uk)

## Related

- [Overdrafts](/credit-borrowing/overdrafts/)
- [Buy Now, Pay Later](/credit-borrowing/buy-now-pay-later/)
- [Problems Repaying Credit](/credit-borrowing/problems-repaying-credit/)
- [Finding Free Debt Advice](/debt-money-problems/finding-free-debt-advice/)

## Sources

- FCA — [Price cap on high-cost short-term credit](https://www.fca.org.uk/firms/price-cap-high-cost-short-term-credit) (accessed 2026-08-22)
- FCA — [FCA confirms price cap rules for payday lenders](https://www.fca.org.uk/news/press-releases/fca-confirms-price-cap-rules-payday-lenders) (accessed 2026-08-22)
- FCA Handbook — [CONC 5A — cost cap for high-cost short-term credit](https://www.handbook.fca.org.uk/handbook/CONC/5A/) (accessed 2026-08-22)