Are Payday Loans legal in the UK?

Payday loans are legal in the UK, but they are heavily regulated. In the past, payday loans were often associated with very short repayment periods, high interest and people borrowing until their next payday.

Today, lenders offering high-cost short-term credit, including payday loans, must follow rules set by the Financial Conduct Authority (FCA). These include limits on interest, fees and the total amount a customer can be charged.

Please note: Moneyboat doesn’t offer payday loans. Instead, we offer short-term loans, which are repaid over an agreed period rather than in one single repayment on your next payday. Approval is subject to eligibility and affordability checks.

In this guide, we explain whether payday loans are legal in the UK, how they are regulated, what interest-rate rules apply, and what to consider before applying for any short-term credit.

Representative Example: Borrow £400 for 4 months: 3 monthly repayments of £156.09 followed by a final repayment of £156.07. Total repayment £624.34. Interest rate p.a. (fixed) 288.35%. Representative 1,267.9% APR.

What is a payday loan?

A payday loan is a type of credit that is usually repaid in one payment, often around the borrower’s next payday.

This means the borrower receives money upfront and repays the full amount borrowed, plus interest and any applicable fees, in a single lump sum.

This type of repayment structure may appear straightforward, but it can also create pressure if the full repayment falls at the same time as other bills or essential expenses.

Are payday loans legal in the UK?

Yes, payday loans are legal in the UK, provided they are offered by an authorised lender and follow the rules that apply to high-cost short-term credit.

Payday lenders and short-term credit providers are regulated by the FCA. This means lenders must follow rules around how loans are advertised, how affordability is assessed, how much can be charged, and how customers are treated if they fall behind on repayments.

However, legal doesn’t mean they’re suitable for everyone – payday loans and other forms of short-term borrowing can be expensive. They’re designed for short-term borrowing and should not be used as a long-term way to manage ongoing financial difficulties.

How have the laws around payday loans changed? 

Since FCA regulation was introduced for consumer credit, lenders have had to follow stricter rules on costs, affordability and customer treatment. These rules are designed to reduce the risk of customers being charged excessive fees or borrowing in a way that becomes unaffordable.

For example, FCA rules limit the daily cost of high-cost short-term credit and cap default fees. They also limit the total amount a borrower can be required to repay in interest, fees and charges.

How are payday loans legal if they have high interest rates?

Payday loans and other short-term loans can have high APRs because they’re usually borrowed over a short period. APR shows the annual cost of borrowing, so the figure can look very high for loans designed to be repaid over weeks or months rather than years. Importantly, lenders cannot charge whatever they like, and they must adhere to FCA rules, including:

• A cap on interest and fees of 0.8% of the amount borrowed per day.
• A cap on default fees of £15.
• A total cost cap, meaning the borrower should never have to repay more in interest, fees and charges than the amount originally borrowed.

This means that if you borrowed £100, you should not have to pay back more than £200 in total, including the original amount borrowed, interest and relevant fees.

Even with these caps, short-term credit can still be expensive. Before applying, it’s important to check the total amount repayable and whether each repayment is affordable alongside your rent or mortgage, bills, food, travel, and other commitments.

Are payday loans a scam?

Payday loans are not necessarily a scam. They’re legal in the UK when provided by an authorised lender that follows FCA rules.

However, scams do exist in the wider credit market, so it’s important to check who you’re dealing with before applying. You should be cautious if a lender:

• Asks for upfront fees before providing a loan
• Guarantees approval without checks
• Pressures you to apply quickly
• Avoids explaining the total cost of borrowing
• Isn’t clear about who they are or whether they are authorised

Before applying for any loan, check that the lender is authorised and make sure you understand the repayment schedule, total amount repayable, interest, charges, and what happens if you miss a payment.

A loan being legitimate does not mean it’s the right option for your circumstances. Short-term credit is expensive and may not be suitable if you’re already struggling to keep up with bills, repayments, or other financial commitments.

If you’re borrowing to cover essential costs, repay other debts or manage pressure on your household budget, taking out more credit may make your situation harder to manage.

Consider seeking free and impartial support before applying. For help, go to www.moneyhelper.org.uk. You can also see a full list of free and independent support organisations here.

What should you consider before applying for short-term credit?

Before applying for a payday loan or short-term loan, consider:

• The total amount repayable: Look beyond the amount borrowed and check how much you’ll repay in total.
• Whether repayments are affordable: Consider your income, bills, existing credit commitments, and essential living costs.
• The repayment structure: A single repayment may be harder to manage than instalments, depending on your circumstances. Instalments can spread the cost but you may pay interest for longer.
• The consequences of missing payments: Late or missed payments can lead to extra charges, affect your credit file, and make borrowing more difficult in future.
• Whether borrowing is the right option: Short-term credit is intended for temporary borrowing needs, not ongoing financial difficulty.

Warning: Late repayment can cause you serious money problems. For help, go to www.moneyhelper.org.uk. You can also see a full list of free and independent support organisations here

Alternatives to payday loans

Borrowing may not always be the right option. Depending on your circumstances, you may want to consider:

• Speaking to your bill provider about a payment plan
• Checking whether you are eligible for support or benefits
• Using savings, if available
• Speaking to a credit union
• Seeking free debt advice
• Reviewing your budget before taking on new credit

If you’re already behind on bills or relying on borrowing for everyday costs, getting support early may help you understand your options.

What does Moneyboat offer instead of payday loans?

Moneyboat doesn’t offer payday loans. We offer short-term instalment loans, which are repaid over an agreed period with scheduled repayments, rather than in one single repayment on your next payday.

Some people search for “payday loans” when they’re looking for short-term borrowing more generally. The important distinctions are how the loan is structured, how repayments work, the total cost of borrowing, and whether repayments are affordable.

Approval is not guaranteed and depends on eligibility, affordability checks and individual circumstances.

Warning: Short-term loans are still an expensive form of credit and may not be suitable if you’re already struggling financially.

FAQs about payday loans in the UK

*Returning customers may be able to borrow up to £1,500 with a Moneyboat loan, subject to affordability checks, while new customers may be able to borrow up to £800.

Please note: These pages explain different borrowing options and are not recommendations to apply. Each option has different features, repayment structures, and eligibility criteria. Approval is never guaranteed and is subject to affordability and eligibility checks.

Important: Moneyboat provides regulated short-term loans intended for temporary financial emergencies, with clear terms and scheduled repayments over an agreed period.

Read our guide to understand the differences between payday loans and short-term loans.

What can I do if I think a payday loan was unaffordable?

If you think a payday loan or short-term loan was unaffordable, you can contact the lender and explain your concern.

You may be able to make a complaint if you believe the lender did not carry out reasonable checks or should not have provided the loan based on your circumstances at the time.

The Financial Ombudsman Service says that, when looking at short-term lending complaints, it may consider whether the lender carried out reasonable and proportionate checks, whether the borrowing could be repaid sustainably, and whether the pattern of lending increased the borrower’s indebtedness in an unsustainable or harmful way.