How to Become a Payday Lender in the UK?

Estimated reading time: 8 minutes

Last updated on October 29th, 2025 at 03:04 pm

To become a payday lender in the UK in the high-cost short term lending industry, you will require FCA authorisation which takes 6-18 months depending on the complexity of your business.

You will initially be able to submit your application, receive feedback from the regulator and make amendments to your application to get it processed and approved.

Part of being approved as a payday lender by the FCA means that you demonstrate that you are fit and proper to run a loans business, have the necessary checks in place, cash reserves and viable business model to run responsibly.

What Does It Mean To Be A Payday Lender In The UK?

Being a payday lender in the UK means offering short-term, high-cost loans to individuals who need quick access to money, usually to be repaid by their next payday. 

These are typically small loans (often a few hundred pounds) and are designed to help people manage unexpected expenses. However, because they can carry high interest rates, they are one of the most tightly regulated types of credit in the UK.

Operating in this space isn’t as simple as creating a website and offering loans. Lenders must comply with strict laws set by the Financial Conduct Authority (FCA), the government body that oversees consumer credit. Becoming a payday lender involves meeting legal, financial, and operational standards before you can offer any loans to the public.

What Do You Need To Become a Payday Lender in the UK?

1.FCA Authorisation – You must be authorised by the Financial Conduct Authority (FCA) to carry out consumer credit activities. Payday lending without FCA authorisation is illegal.

2. Correct Permissions – Apply for the specific permission for “high-cost short-term credit” (HCSTC) under the FCA’s credit permissions.

3. Fit and Proper Status – All company directors, partners, and key managers must pass the FCA’s “fit and proper” test to show honesty, competence, and financial soundness.

4. Detailed Business Plan – You’ll need to provide a business plan showing how you’ll operate, manage risks, comply with regulations, and ensure responsible lending.

5. Capital Requirements – Have enough starting capital to fund your loans and cover operational costs. The FCA expects payday lenders to demonstrate financial stability.

6. Policies and Procedures – Create robust policies for credit checks, affordability assessments, debt collection, complaints handling, taking repayments and data protection (GDPR).

7. Compliance Systems – Set up systems to ensure you follow the FCA’s Consumer Credit Sourcebook (CONC) rules, including limits on rollovers, charges, and interest rates.

8. Professional Indemnity Insurance – Many lenders obtain suitable insurance to protect against claims of professional negligence or regulatory breaches.

9. Credit Reference and Fraud Checks – Register with credit reference agencies (such as Experian or Equifax) and fraud prevention databases to assess borrower risk and carry out credit checks.

10. Data and Reporting Capabilities – Have secure IT systems to record loans, payments, arrears, and regulatory reports accurately, ensuring transparency with the FCA and customers.

Do I Need Authorisation To Become A Payday Lender?

Yes, you must be authorised by the Financial Conduct Authority (FCA) before you can legally offer payday loans in the UK. It is a criminal offence to lend money without proper authorisation, and doing so can result in heavy fines, legal action, or even prosecution. 

FCA authorisation is designed to ensure that only businesses with the right structure, resources, and compliance processes can operate in the consumer credit market.

The FCA will look at several factors during your application, including the suitability of your business model, the integrity and qualifications of the company directors, your financial position, and how you plan to treat customers fairly. This process is thorough and can take several months, so it’s important to plan well in advance.

What Steps Are Involved In Setting Up A Payday Lending Business?

To become a payday lender in the UK, you need to follow a series of legal and regulatory steps before you can offer loans to customers. The process takes time and careful preparation, but it’s essential if you want to operate legally and responsibly.

Here’s what’s involved:

• Set up a registered company: Form a legal business entity, usually a limited company, and register it with Companies House.
• Apply for FCA authorisation: Submit a detailed application to the Financial Conduct Authority, including your business plan, financial forecasts, compliance policies, and background checks for directors.
• Develop robust compliance systems: Put in place processes for verifying customer identity, assessing affordability, protecting personal data, and handling complaints.
• Plan your funding model: Show how you will finance the loans — either with your own capital or through investors — and how you will manage financial risk.
• Respond to FCA review: After submitting your application, the FCA may request further information. If everything meets their standards, you’ll receive authorisation to trade.
  

Follow this link to apply for FCA authorisation.

In short: you cannot legally lend money in the UK until the FCA approves your business. Preparing thoroughly and ensuring your company meets all regulatory expectations will make the process smoother and increase your chances of being authorised.

What Rules And Regulations Must Payday Lenders Follow?

Payday lenders in the UK must follow a strict set of rules under the FCA’s Consumer Credit Sourcebook (CONC). These rules are designed to protect borrowers from irresponsible lending practices and ensure they are treated fairly.

One of the key regulations is the price cap introduced in 2015, which limits how much payday lenders can charge. Interest and fees combined cannot exceed 0.8% per day of the amount borrowed, default charges are capped at £15, and total costs must never exceed 100% of the original loan amount. 

Lenders must also carry out thorough credit and affordability checks before approving any loan, ensuring that customers can repay without falling into financial hardship.

Other important requirements include clear and transparent communication about loan terms, fair treatment of customers in arrears, and strict data protection standards. Lenders must have systems in place for dealing with complaints and must report regularly to the FCA to prove they are complying with all regulatory standards. 

Breaching these rules can lead to severe penalties, including fines, compensation orders, and removal of authorisation.

Read our guide on payday loan regulations.

How Much Does It Cost To Become A Payday Lender?

Starting a payday lending business requires significant financial investment and a starting point would typically be around £100,000 whilst demonstrating that you have cash reserves to fund loans.

The FCA application fee alone can range from a few hundred to several thousand pounds depending on the size and structure of your business. In addition to this, there are ongoing annual fees to remain authorised, which scale with the volume of lending you do.

Beyond regulatory costs, you’ll need capital to fund the loans themselves as well as money for compliance systems, legal advice, technology infrastructure, marketing, and staff training. Many new lenders also hire compliance consultants to help prepare their FCA application, which adds to the cost but can improve the chances of approval.

The total cost to set up a payday lending business can range based on complexity – including how big you plan to be. It’s a significant investment, and because the industry is so heavily regulated, it’s not a business that can be started quickly or cheaply.

Category	Fee (£)	Description

Category 1

£280

Entry-level authorisation for very simple business models or limited permissions.

Category 2

£550

For firms with slightly more complex permissions or small-scale activities.

Category 3

£1,120

Medium complexity authorisations such as certain advisory or intermediary activities.

Category 4

£2,790

For businesses requiring broader permissions, possibly including investment or fund-related activity.

Category 5

£5,580

Higher complexity applications, often for larger or more regulated activities.

Category 6

£11,150

For larger firms with significant operational or financial scope.

Category 7

£27,870

High complexity authorisations such as large financial services or investment firms.

Category 8

£55,740

Complex firms with wide-ranging permissions or national operations.

Category 9

£111,470

Very large or specialised financial institutions or market operators.

Category 10

£222,940

Highest complexity authorisations, including major exchanges or significant financial entities.

How Can I Get FCA Authorisation Faster?

It is possible to get FCA authorisation faster, with the help of compliance experts or lawyers with experience in the industry and application process. This may help you get approved and up and running in the 6-12 month timeframe and limit the number of iterations you will have to make.

Other options include buying a license from another existing or incumbent company – and with a quick turnaround, you could be trading in weeks or months. You will always need to ask with caution because you could be responsible for any historical liabilities.

In conclusion, becoming a payday lender in the UK is possible, but it’s far from simple. You must be authorised by the FCA, build a compliant business from the ground up, and be prepared to meet strict ongoing regulatory requirements. The process takes time, careful planning, and significant investment.

For those willing to do the work, however, payday lending can be a viable business model, provided it’s done responsibly, transparently, and with the borrower’s best interests in mind. The key is understanding that this isn’t just about lending money; it’s about meeting legal obligations and maintaining trust in a highly scrutinised financial sector.