TL;DR
UK payday loans are subject to FCA price caps since January 2015: maximum 0.8% interest per day, GBP 15 default fees, and a 100% cap on total cost. This guide covers the rules, the alternatives, and how to use payday loans safely (or avoid them).
Key facts
- FCA price cap since 2 January 2015.
- Maximum interest 0.8% per day.
- Maximum default fee GBP 15.
- Total cost (including all fees) capped at 100% of principal.
- Wonga (largest pre-cap lender) collapsed 2018.
- Market shrunk from around GBP 4 billion to under GBP 200 million.
- FCA CONC 5A governs payday loan affordability.
- Payday lenders must offer free debt advice referral under CONC 8.
Payday loans are short-term high-cost credit, typically borrowed for amounts of GBP 50 to GBP 1,500 and repaid in full at the borrower's next payday. The product was historically associated with extreme APRs (1,500-5,000% representative) and predatory practices, driving regulatory intervention. Since January 2015 the FCA has imposed price caps that have transformed the market.
This guide covers the current rules, the post-cap landscape, the small remaining payday lender market, and the credit-file consequences. The framework is the FCA CONC sourcebook, with specific CONC 5A rules on high-cost short-term credit.
The FCA price cap and what it controls
The FCA introduced the price cap on 2 January 2015 following its review of the high-cost short-term credit market. The cap has three elements: maximum interest of 0.8% per day on the outstanding balance, maximum default fees of GBP 15, and total cost (interest, fees and charges) capped at 100% of the original principal.
The 0.8% daily rate translates to around 292% APR on the standard FCA calculation. While still high, this is materially below the 1,500-5,000% APRs common in the pre-cap market. A GBP 200 loan for 30 days costs GBP 48 in interest at the 0.8% rate.
The 100% total cost cap means a borrower never pays more in total than the original principal, regardless of how long the loan is outstanding or how many fees accumulate. A GBP 200 loan can never cost more than GBP 200 in total interest, fees and charges over its life.
Worked example: a borrower takes a GBP 200 loan with 30-day term. Interest at 0.8% per day for 30 days = GBP 48. Total repayment if paid on time: GBP 248. If the borrower misses the payment, a default fee of GBP 15 applies. Continuing interest at 0.8% per day until the 100% total cost cap is hit (which on this loan would be after about 154 days). After that point no further interest or fees accrue.
How the market changed post-cap
The price cap transformed the payday loan market. Several major lenders exited or collapsed: Wonga (then the largest UK payday lender) entered administration in August 2018, citing the cap and rising complaint volumes. QuickQuid and Sunny followed. Today's UK payday market is much smaller and dominated by a few licensed providers.
FCA volume data shows the market shrunk from around GBP 4 billion of payday lending in 2013 to under GBP 200 million by 2023 - a 95% contraction. The number of active borrowers fell from around 1.6 million annually to under 200,000. The cap and accompanying CONC 5A affordability rules effectively de-marketed the product to all but the highest-risk borrowers.
Affordability assessments under CONC 5A require lenders to consider whether the borrower can reasonably repay without further borrowing. Where the assessment shows likely difficulty, the loan must be refused. This rules out borrowers with very low income or signs of existing financial stress.
Edge case: refunds for unaffordable lending have become common since 2018. Borrowers who took out multiple loans without proper affordability assessment have successfully claimed back interest and fees, and in some cases had credit-file markers removed. Wonga's collapse was partly driven by the volume of these claims; the administrators continue to process them.
Eligibility and the current application process
Current providers (Drafty, Sunny, Provident, others) require online application with income evidence, bank statement access (often through Open Banking), and employment information. The CONC 5A affordability check examines payslip detail, monthly outgoings, and existing credit commitments. Approval rates are lower than the pre-cap era.
Funds typically arrive within 15 minutes of approval. The high-speed funding remains a defining feature of payday lending and the reason borrowers in immediate need still use the product despite the high cost.
Loan amounts are typically GBP 50 to GBP 1,000 for first-time borrowers. Repeat borrowers may access higher limits up to GBP 1,500. The loan term is typically 7-31 days, paid in a single installment, though some providers offer longer 'instalment loans' with 3-12 monthly payments at similarly high rates.
Worked example: a borrower in immediate need of GBP 300 to cover a car repair before payday in 12 days. The lender approves at 0.8% daily for 12 days = GBP 28.80 of interest. The borrower repays GBP 328.80 on payday. The total cost is GBP 28.80, well within the cap.
Credit-file impact
Payday loan use itself appears on credit files - the account, the amount, the repayment record. On-time repayment shows positive payment history. Late or missed payments show negatively.
However, some mainstream lenders treat payday loan use as a negative signal regardless of the repayment record. The pattern of needing payday lending suggests financial stress. Mortgage lenders in particular may decline applications from borrowers with recent payday loan history even if the loans were repaid on time.
Time horizons: most lenders apply specific 'no payday loan in last 12-24 months' rules. Some specialist 'adverse credit' lenders ignore this signal; mainstream lenders typically don't. The recovery path from payday lending into mainstream credit access typically requires 24+ months of clean recent history.
Practical action: avoiding payday lending where alternatives exist is the better long-term strategy. The CONC 8 free debt advice route, credit union loans (capped at 42.6% APR), authorised overdraft on a current account, or asking employer for a salary advance are all typically better options.
Alternatives and the free advice route
Credit unions offer regulated short-term loans at much lower rates. Maximum APR for credit union loans is 42.6% under section 11B of the Credit Unions Act 1979, with most credit unions charging 8-26% APR in practice. Membership is geography or employer based; finding a local credit union is straightforward through findyourcreditunion.co.uk.
Authorised current account overdraft - the post-2020 FCA rules require single APR pricing with no fixed fees. Typical APR 39.9% to 49.9%; cheaper than payday loans, with no time pressure to repay. Where the borrower already has an overdraft facility, using it is normally preferable to a fresh payday loan.
Employer salary advance schemes are increasingly common. Many large UK employers (Tesco, Sainsbury's, several local councils, NHS Trusts) offer 'streaming pay' or salary advance services that allow employees to access earned-but-not-yet-paid wages. The advance is typically interest-free or very low cost; the deducted amount comes off the next payday.
Free debt advice from StepChange, National Debtline, or Citizens Advice can help borrowers facing recurring payday loan use to address the underlying budget issues. The advisor can assist with budgeting, negotiating with creditors, and accessing emergency funds (Local Welfare Assistance schemes, Discretionary Housing Payments) that the borrower may not be aware of.
Debt sale and post-collapse refund process
Wonga (collapsed August 2018), QuickQuid (collapsed October 2019) and other failed payday lenders left consumer claims that have been processed by the administrators over multiple years. Borrowers who took unaffordable loans from these lenders can still claim refunds; the administrator handles the claim, but recoveries are typically pence in the pound.
Currently-trading lenders also process refund claims for prior unaffordable lending. The complaint goes through the lender's own complaints process; if refused, escalation to the FOS produces decisions binding on the lender where issues are upheld.
The basis for refund claims is typically that the lender did not carry out adequate affordability assessment under CONC 5A before lending, leading to a foreseeably unaffordable loan. The FOS has set out criteria for considering these cases including indicators of unaffordability (multiple loans, deteriorating financial position, declared difficulty) that the lender should have noticed.
Practical action: borrowers with payday loan history from the past 6 years should consider whether they have grounds for refund claims. Free debt advisers can assess and help with complaints. Avoid commercial claims management companies that take a percentage of any refund - the FOS route is free.
Disclaimer
This article provides general information based on rules and figures published by UK government and regulator sources as of May 2026. It is not personal financial, legal, immigration or tax advice. Rules, fees and figures change and individual circumstances vary. Readers should check primary sources or consult a qualified, regulated adviser before acting on any information here.
Frequently asked questions
Are UK payday loans regulated?
Yes. The FCA regulates payday loan providers since April 2014 and imposed the price cap on 2 January 2015. Key provisions: 0.8% daily interest cap, GBP 15 maximum default fee, 100% total cost cap. Lenders must carry out affordability assessment under FCA CONC 5A; loans that the borrower cannot reasonably repay should be refused. The FCA register lists authorised providers.
What's the maximum interest on a UK payday loan?
0.8% per day on the outstanding balance, under the FCA price cap since January 2015. This translates to around 292% APR by the FCA's standard calculation. A GBP 200 loan for 30 days costs GBP 48 in interest at the maximum rate. The 100% total cost cap means a borrower never pays more than the original principal in total interest, fees and charges over the life of the loan.
Can payday loans hurt my mortgage application?
Yes. Many mortgage lenders apply specific 'no payday loan in the last 12-24 months' criteria. Even where the loans were repaid on time, the pattern of needing payday lending suggests financial stress that mortgage lenders weight negatively. Specialist 'adverse credit' lenders may consider recent payday loan use but typically at higher mortgage rates. Avoiding payday loans where alternatives exist preserves mortgage options.
What's better than a payday loan?
Several alternatives are typically cheaper and lower-risk. Credit union loans (capped at 42.6% APR, often 8-26% in practice). Authorised current account overdraft (39.9-49.9% APR, no time pressure). Employer salary advance schemes (increasingly common at large UK employers). Asking family or friends (if appropriate). Free debt advice from StepChange or National Debtline can identify other options including local welfare assistance for emergencies.
Can I get a refund for an unaffordable payday loan?
Yes if the lender did not carry out adequate affordability assessment under CONC 5A. Submit a complaint to the lender first; if not resolved within 8 weeks, escalate to the Financial Ombudsman Service. Successful complaints recover interest, fees and may result in credit-file marker removal. Wonga's collapse in 2018 was driven partly by the volume of these refund claims; the practice of complaining for refunds remains common with current providers.