What is a payday loan?

A payday loan might be a short-term fix if you're strapped for cash before payday. You borrow a small amount – usually just a few hundred pounds – and typically pay back the loan plus interest within a month. However, there are payday loans available now that allow you to make repayments over several months, so you can select a plan that works for your needs and budget.

They can be a lifeline when something unexpected crops up, like your car breaking down or an urgent bill landing at the wrong time. They offer quick access to money when there’s no wiggle room in the budget. It can be fast and easy to get a payday loan, but do consider that they come with significantly higher interest rates than standard loans.

Additionally, payday lenders typically use a Continuous Payment Authority (CPA), which means the repayments are taken automatically from your bank account on the agreed dates, usually your salary payment days. If there isn’t enough in your account, you could face extra charges. Make sure you check the terms carefully and be sure you can make the repayments before going ahead.

Are you eligible for a payday loan?

If you're thinking about applying for a payday loan, it helps to know what lenders usually expect. While exact requirements vary between providers, here’s what you’ll typically need to qualify:

  • Age and residency: You must be at least 18.

  • Income: Lenders may require you to prove a regular income - the key is proving you can afford the repayments.

  • Bank account: You’ll likely need a UK current account with a valid debit card, as repayments are often collected via Continuous Payment Authority (CPA).

  • Credit history: You may not need a perfect credit score – some lenders even specialise in fair or poor credit – but typically you’re less likely to be approved if you have an especially low score.

Every lender is different, so always read their criteria carefully before applying. And remember, only borrow if you’re confident you can repay on time without stretching your budget.

How much can I borrow with a payday loan?

Payday loans offer smaller amounts than your typical personal loans. For instance, one lender we checked offers payday loans from £250 to £1,500, though some providers may offer more or less than this. How much you can borrow depends on the lender’s limits, your income, your credit history, and what they assess you can afford to repay.

While some lenders may let you borrow more as a returning customer, it’s best to only take what you truly need – payday loans are designed for short-term use and should be approached with caution. As always, make sure you can afford the repayments without it causing you financial stress.

The cost of borrowing with payday loans

Let’s be frank: payday loans are an expensive way to borrow money. You’ll even see payday loans with APR interest of over 1,000% - much higher than most other forms of lending. As an example, one lender charges a representative APR of 611.74% on a £700 loan over six months. That would mean repaying £1,179.05 in total - nearly £500 more than the amount borrowed.

That said, remember that APR stands for ‘annual percentage rate’, which shows the cost of borrowing over a whole year, including interest and charges. Most payday loans only last a few weeks or months, not a year. So, while the APR can sound scary, it’s useful to focus on the actual amount you’ll repay rather than the headline rate.

Also, there are strict rules in place to keep a check on the cost of these loans. Since 2 January 2015, payday loan charges have been capped by the Financial Conduct Authority. This means:

  • You can’t be charged more than 0.8% in interest each day. In monetary terms, it means you won’t pay more than £24 in fees and interest for every £100 borrowed over 30 days.

  • If you don’t repay on time (known as ‘defaulting’), the most the lender can charge as a default fee is £15.

  • You’ll never pay back more than twice what you originally borrowed. So if you borrowed £200, the most you would ever have to pay including interest and charges is £400.

The bottom line is that these loans are meant for emergencies, not everyday borrowing. Do compare providers to find the best rate and terms for your needs, and consider exploring more affordable borrowing options such as 0% credit cards before turning to payday credit.

Loan guides

Answering your questions about payday loans