Credit & Borrowing
Payday Loans & High-Cost Credit
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
On this page
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 may offer small loans at a much lower cost
- An arranged overdraft or a low-rate credit card 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 & protection
- 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.
General information, not personal advice
Consumer Credit is an independent information service. We do not provide regulated financial advice or sell financial products. For advice on your own situation, speak to an appropriately authorised firm or a free service such as MoneyHelper. About Consumer Credit.
Sources
We checked this page against these official and authoritative sources.
- FCA, Price cap on high-cost short-term credit (opens in a new tab). Accessed 22 Aug 2026.
- FCA, FCA confirms price cap rules for payday lenders (opens in a new tab). Accessed 22 Aug 2026.
- FCA Handbook, CONC 5A — cost cap for high-cost short-term credit (opens in a new tab). Accessed 22 Aug 2026.