Every Loan › High-cost short-term credit and the FCA price cap
High-cost short-term credit and the FCA price cap
High-cost short-term credit (HCSTC) covers small, short loans that were once known as payday loans. Since 2015 the FCA has capped how much they can cost.
What is high-cost short-term credit?
The FCA uses the term high-cost short-term credit for short-term loans with a very high APR, such as payday loans and some short-term instalment loans. They are intended to be used for the short term, but can become expensive if rolled over or repeated.
The price cap in outline
The FCA's price cap has applied since 2 January 2015. It has three parts:
- Initial and ongoing cost cap: interest and fees must not exceed 0.8% per day of the amount borrowed.
- Fixed default fees: if you miss a payment, default charges are capped at £15 in total.
- Total cost cap: you must never pay back more in fees and interest than 100% of what you borrowed.
So if you borrow £100, you will never owe back more than £200 in total, including interest, fees and charges, however long it takes you to repay.
Why the cap does not make it cheap
A cap of 0.8% per day is still a very high rate compared with other credit. Annualised, it is far above the APR of ordinary loans and cards. The cap protects you from the worst outcomes, but short-term borrowing can still be a poor fit if you are likely to need it again next month.
Other FCA protections
- Lenders must assess whether you can afford to repay.
- Limits on rolling a loan over.
- Limits on repeated attempts to take money from your account by continuous payment authority.
- Risk warnings in adverts, and information about debt advice.
The risks
Repeated use can signal a deeper money problem, and each new loan can reduce your ability to cope with the next month. Missing payments can cause charges, a damaged credit file and stress. If you are borrowing to repay other borrowing, consider speaking to free debt advice.
Alternatives to consider
We do not recommend products, but you may want to learn about: speaking to your creditors about a payment plan, asking your employer about advances on pay, checking for benefits or grants you might be entitled to, local authority hardship support, and credit unions, which are community lenders regulated by the FCA and PRA. Compare any alternative using the total cost.
Check the lender
Make sure the lender is on the register (how to check). An unauthorised lender is not covered by the cap and may be a loan shark (see warning signs).
What a lender should do before lending
The lender must carry out an affordability check proportionate to the loan, looking at income and essential spending. It should explain the repayment dates, what happens if you miss one, and your right to withdraw. It must also point you to free debt advice. If a lender does none of these, that is a sign to stop and think. Remember too that each application can leave a mark on your credit file, which other lenders may notice.
This is general information, not financial advice. We're not a lender or broker and don't arrange credit.
Frequently asked questions
What is the payday loan cap?
Interest and fees are capped at 0.8% a day of the amount borrowed, default fees at £15 and total costs at 100% of the amount borrowed.
Can I owe more than double what I borrowed?
Not on a regulated HCSTC loan: the total cost cap means you never pay back more than twice the amount borrowed.
Are payday loans still available?
Some lenders still offer high-cost short-term credit. Check any lender is authorised.