how does price cap work for payday loans uk
Daniel Tannenbaum

How Does The Price Cap Work For Payday Loans In The UK?

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Last updated on July 23rd, 2026 at 01:57 pm

The payday loan price cap in the UK was introduced by the Financial Conduct Authority in 2015 and limits how much lenders can charge borrowers to no more than 0.8% per day in interest and fees.

In addition to this rule, default fees are capped at £15, and the total amount a borrower repays can never be more than double the amount borrowed. These rules were designed to make payday loans fairer, prevent spiralling debt and improve protection for consumers.

Key Points

  • The daily cost of a payday loan is capped at 0.8% of the amount borrowed.
  • If you miss a payment, the maximum default fee is £15, although interest can still be charged within the overall cap.
  • You will never repay more than 100% of the amount borrowed in interest, fees and charges combined.

How Much Is The Price Cap For Payday Loans In The UK?

The FCA introduced three main limits that every authorised payday lender must follow.

First, lenders cannot charge more than 0.8% per day of the amount borrowed in interest and fees. This applies whether the loan is new or rolled over.

Second, if you fail to repay your loan on time, the lender can charge a maximum default fee of £15. Interest can continue on the outstanding balance, but it cannot exceed the daily rate cap.

Third, there is a total cost cap of 100%. This means the total interest, fees and charges can never be more than the amount you originally borrowed. In simple terms, you will never have to repay more than twice what you borrowed.

Payday Loan Repayment Example With The Price Cap

Imagine you borrow £300 for 30 days.

At the maximum daily rate of 0.8%, the highest interest and fees would be £72 over the 30-day period.

This means you would repay:

  • Amount borrowed: £300
  • Maximum interest and fees: £72
  • Total repayment: £372

If you missed the repayment date, the lender could add a default fee of up to £15, plus interest within the FCA limits. However, no matter what happens, the total amount you repay could never exceed £600, which is twice the amount borrowed. (fca.org.uk)

When Was The Price Cap For Payday Loans Introduced?

The payday loan price cap came into force on 2 January 2015 after the FCA was given responsibility for regulating consumer credit.

Before then, payday lenders could charge extremely high interest rates and fees, making it easy for borrowers to become trapped in a cycle of debt. The FCA introduced the cap alongside stricter affordability checks, limits on loan rollovers and stronger rules around debt collection.

The changes marked one of the biggest reforms to the UK’s high-cost short-term credit market.

What Impact Has The Price Cap For Payday Loans Had On The Industry?

The price cap had a significant impact on both lenders and borrowers.

Many direct payday lenders found it harder to operate profitably under the new rules. As a result, a large number of firms left the market, reducing the number of payday loan providers available in the UK. The FCA also introduced tougher supervision, meaning only firms meeting higher standards could continue trading.

For consumers, the changes have generally been positive. Borrowers now pay less for payday loans, face lower penalties if they miss repayments and have greater protection against excessive borrowing costs.

The FCA estimated that someone borrowing £100 for 30 days would pay no more than £24 in fees and charges if they repaid on time. The regulator also estimated that only around 7% of previous borrowers would lose access to payday loans because of the reforms, while the majority would benefit from lower costs.

In addition, the number of payday loans and the total amount borrowed fell by 35% during the early period of FCA regulation, showing the market became smaller and more tightly controlled.

Was A Price Cap For The Payday Loan Industry A Good Thing?

For most borrowers, the price cap has been a positive change. The reform has made payday loans more affordable by limiting the amount lenders can charge. It has also reduced the risk of borrowers falling into long-term debt, as repayment costs can no longer grow without limit.

While fewer payday lenders now operate in the UK, the firms that remain must follow much stricter rules designed to protect consumers. Borrowers also benefit from improved affordability checks, making it less likely they will be given loans they cannot realistically repay.

Over time, consumers have moved to more affordable payday loan alternatives including credit unions, 0% credit cards, buy now pay later and cheaper overdraft facilities.