What is the difference between a direct lender and a broker?

A direct lender funds the loan themselves and manages your application and repayments. A broker does not lend; they match you with lenders on their panel. Using a broker may increase your options, but always review how your data will be used.

Payday Loans UK: Costs, Risks & Safer Alternatives

Payday loans in the UK are one of the most widely searched forms of short-term borrowing. They promise quick access to cash for urgent needs, but they also come with high costs and risks.

In this guide, we’ll explain how payday loans work, the regulations that protect borrowers, who might consider them, and the safer alternatives available.

Home » Payday Loans

What Are Payday Loans?
How Payday Loans Work in the UK
FCA Rules and Regulations
Payday Loan Costs and Example Repayments
Payday Loans for Different Borrowers
The Risks of Payday Loans
When a Payday Loan Might Be Considered
Safer Alternatives to Payday Loans
FAQs About Payday Loans
Final Thoughts

Disclaimer: This page is for information purposes only and does not constitute financial advice. Always check the FCA Register to ensure a lender is authorised before borrowing. If you are struggling with debt, free support is available from StepChange, National Debtline, and Citizens Advice.

What Are Payday Loans?

A payday loan is a type of high-cost short-term credit (HCSTC). Borrowers typically request amounts between £100 and £1,000, often to cover urgent or unexpected expenses.

These loans were originally designed to be repaid in full on your next payday. In the early 2000s, companies like Wonga and QuickQuid popularised online payday loans, but concerns about debt spirals and unfair lending practices led the Financial Conduct Authority (FCA) to introduce strict regulations in 2014.

Today, payday loans:

Are FCA-regulated
Must pass affordability checks
Have caps on daily interest, fees, and total repayment costs

They are still available, but remain one of the most expensive forms of borrowing in the UK.

How Payday Loans Work in the UK

The process usually follows these steps:

Application – Borrowers apply online or in-store. Many lenders advertise same-day decisions.
Eligibility Check – The lender runs credit and affordability checks (see: Payday Loan Eligibility).
Approval – Some lenders provide “instant” decisions.
Payout – Funds are typically transferred within hours of approval.
Repayment – Traditionally due on your next payday, but many lenders now offer instalments over 3–6 months.

FCA Rules and Regulations

Since 2014, all UK payday lenders must follow strict FCA rules:

Interest cap: Maximum of 0.8% per day
Default fees: Capped at £15
Total cost limit: You never repay more than 100% of the loan amount
Affordability checks: Lenders must assess income and expenses
Consumer Duty: Borrowers must be treated fairly, with clear and not misleading information

These protections reduce risk compared to pre-2014 lending — but payday loans remain high-cost credit.

Payday Loan Costs and Example Repayments

Even under FCA rules, payday loans are expensive compared to other credit options.

Loan Amount	Repayment Term	Approx. Interest	Total Repayable
£200	30 days	£48	£248
£500	3 months	£240	£740
£1,000	6 months	£480	£1,480

Figures are illustrative only. Always check your lender’s actual terms.

Payday Loans for Different Borrowers

Payday Loans with Bad Credit

Some lenders accept borrowers with poor credit, but approval depends more on affordability and income stability than credit score alone.
→ Read our full guide: Payday Loans with Bad Credit

No Credit Check Payday Loans: Myth vs Reality

All FCA-regulated lenders must run checks. While some use soft searches (which don’t affect your score), there is no such thing as a true no credit check loan in the UK.
→ Learn more: No Credit Check Payday Loans

Direct Lender Payday Loans vs Brokers

Direct lender = one company provides the loan
Broker = shares your application with multiple lenders

Direct lenders offer simplicity, while brokers may increase approval chances by connecting you with a panel.
→ Explore our guide: Direct Lender Payday Loans UK

The Risks of Payday Loans

While payday loans can help in emergencies, they carry significant risks:

Debt cycle – Borrowers may roll over loans or take out new ones, leading to spiralling costs.
Credit damage – Missed payments are reported to credit agencies.
Financial stress – High repayments can strain household budgets.

→ See full guide: Understanding the Risks of Payday Loans

When a Payday Loan Might Be Considered

Payday loans should be viewed as a last resort. They might be considered if:

You face an urgent car repair
You need to cover essential household bills
You have a medical or family emergency

If borrowing:

Take the minimum amount necessary
Ensure repayments fit comfortably in your budget
Never take multiple payday loans at once

Safer Alternatives to Payday Loans

Before using payday loans, explore safer, lower-cost options:

Credit unions – Community lenders with capped interest rates.
Budgeting loans – Interest-free, available if you receive benefits (GOV.UK Budgeting Loans).
Overdrafts or credit cards – May be cheaper if used responsibly.
Payment plans – Utility and service providers often offer structured repayment options.
Debt charities – Free support from StepChange, National Debtline, and Citizens Advice.

FAQs About Payday Loans

Got questions about payday loans in the UK? You’re not alone. Below we’ve answered some of the most common queries around costs, credit checks, direct lenders, and safer alternatives.

These short Q&As are designed to give you clear, quick guidance and you can expand each one for more detail.

Are payday loans legal in the UK?

Yes. Payday loans are legal in the UK when provided by a lender authorised by the Financial Conduct Authority (FCA). FCA rules cap costs, limit default fees, and require lenders to run affordability checks.

How do payday loans work?

You apply online or in-store, the lender checks your credit and affordability, and — if approved — funds may be transferred quickly. Repayment is usually on your next payday or over short instalments. Always review the total cost and due dates before accepting.

What are the costs of a payday loan?

By FCA rules, interest is capped at 0.8% per day, default fees are capped at £15, and the total you repay can never exceed 100% of the amount borrowed. Despite these caps, payday loans remain high-cost credit compared with most alternatives.

Can I get a payday loan with bad credit?

Possibly. Some lenders consider applicants with poor credit if the loan appears affordable based on income and outgoings. Approval is never guaranteed and applications are subject to credit and affordability checks.

Do payday lenders do credit checks?

Yes. All FCA-authorised lenders must run credit and affordability checks. Some use soft searches initially, which do not impact your credit score, but a hard check may occur before funding.

Are there guaranteed or no-refusal payday loans?

No. Any claim of guaranteed or no-refusal payday loans is misleading. Responsible lenders must assess each application individually and can only approve loans they believe are affordable.

What happens if I miss a payday loan repayment?

You may be charged up to a £15 default fee and additional interest (within the FCA cap). Your credit file can be negatively affected. Contact your lender as soon as possible—many will offer repayment plans and signpost free debt advice.

Are there safer alternatives to payday loans?

Yes. Consider credit unions, Budgeting Loans or Budgeting Advances (if eligible), arranged overdrafts, payment plans with providers, or free help from charities like StepChange and Citizens Advice. These are often lower-cost and more sustainable.

How can I borrow responsibly?

Only borrow what you need, check the total cost, and make sure repayments fit your budget. Avoid multiple concurrent payday loans and rolling over balances. If in difficulty, speak to your lender and seek free debt advice early.

Final Thoughts

Payday loans remain a legal but high-cost borrowing option in the UK. They may provide quick access to cash, but they should only ever be considered when all safer alternatives have been explored.

If you decide to borrow:

Only take what you can afford to repay
Always confirm the lender is FCA-authorised
Treat payday loans as short-term, last-resort credit

If you’re already struggling, remember: free, confidential help is available from charities like StepChange, Citizens Advice, and National Debtline.