What is a Payday Loan?

If you’ve searched for a payday loan, you may be trying to understand what this type of borrowing is, how it works, how much it can cost, and whether it is right for your situation.

A payday loan is a type of short-term borrowing that was traditionally designed to be repaid in one payment on your next payday. People usually search for payday loans when they need to cover a temporary cost before their next wage payment, such as an urgent bill or essential repair.

Payday loans can be expensive, so it’s important to understand the full cost before applying. They are not designed for long-term borrowing or ongoing financial difficulties.

In this guide, we’ll explain what payday loans are, how they work in the UK, what lenders usually check, what they can cost, and what to consider before taking out any form of short-term credit.

Important: Moneyboat does not offer traditional payday loans that are repaid in one lump sum on your next payday. Moneyboat provides high-cost short-term credit (HCSTC) with fixed repayments over 2 to 6 months, subject to affordability checks. Payday loans and Moneyboat’s short-term loans are both forms of HCSTC, but their repayment structures differ.

Quick answer: What is a payday loan?

A payday loan is a short-term loan that was traditionally repaid in one lump sum on your next payday.

The phrase is now often used more broadly. Some people use the term ‘payday loan’ to describe any short-term borrowing used to cover a temporary cost, even if the loan is repaid over several instalments rather than on one payday.

In regulatory terms, payday loans and some short-term loans, including Moneyboat loans, fall under high-cost short-term credit (HCSTC). The key difference is usually the repayment structure.

Before applying for any payday loan or short-term loan, check:

• The total amount repayable
• The repayment date or repayment schedule
• The interest rate and APR
• Any fees or charges
• Whether a credit check will be carried out
• What happens if you miss a repayment
• Whether the repayment fits comfortably within your budget

If you are already struggling with regular bills, rent, debt repayments or essential costs, further borrowing may not be suitable. Advice is available from Citizens Advice, StepChange, MoneyHelper, and National Debtline. You can also see a full list of free and independent support organisations here.

How do payday loans work in the UK?

A payday loan is usually a small, short-term loan that is repaid on or shortly after your next payday.

The borrower applies for a set amount, the lender reviews the application, and if approved, the borrower receives an offer showing the repayment date, interest, any fees and the total amount repayable.

With a traditional payday loan, the full repayment is usually due in one lump sum. With some short-term loans, repayments may be spread across several instalments instead.

That difference is important. Two loans may both be described as short-term borrowing, but one could require a single repayment, while another may have fixed repayments over a few months.

Before applying, it’s worth checking exactly how the loan is structured and whether the repayment dates fit comfortably within your budget.

Payday loans and short-term loans are not always the same

Payday loans and some short-term loans are both forms of high-cost short-term credit (HCSTC). This means they are regulated under the same high-cost short-term credit rules.

The key difference is usually the repayment structure.

A traditional payday loan is usually repaid in one amount on or around your next payday. A short-term instalment loan is usually repaid over several agreed repayments.

Moneyboat does not offer traditional payday loans. Moneyboat provides HCSTC with fixed repayments over 2 to 6 months, subject to affordability checks. You’ll see the repayment schedule and total amount repayable before deciding whether to accept.

How does a payday loan work?

A payday loan usually follows a few basic steps. The exact process can vary depending on the lender and the type of credit being offered.

1. You apply for credit

You usually complete an online application and provide information such as:

• Your name and contact details
• Your address history
• Your income
• Your employment or regular income source
• Your regular outgoings
• Your existing financial commitments
• Your bank account details

A lender should use this information to understand your circumstances and whether the loan appears affordable.

2. The lender carries out checks

A regulated lender should carry out credit and affordability checks before offering a loan.

These checks may look at your income, outgoings, current credit commitments and credit history. A hard credit check may appear on your credit file and could affect your credit score.

Approval should never be guaranteed. If a lender believes the loan is unaffordable, they may decline the application.

3. You receive a loan offer, if approved

If your application is approved, the lender should show you the full cost before you accept.

This should include:

• The amount borrowed
• The interest charged
• Any fees or charges
• The repayment date or repayment schedule
• The total amount repayable
• What happens if you miss a repayment

Take time to read this carefully. You should understand what you are agreeing to before accepting any loan.

4. You repay the loan

With a traditional payday loan, repayment is usually due in one amount around your next payday.

With some short-term loans, repayments may be spread across several instalments instead. For example, Moneyboat short-term loans are repaid in fixed instalments over 2 to 6 months.

Payday loans vs. short-term instalment loans

Payday loans and short-term instalment loans can both fall under high-cost short-term credit (HCSTC). They can be similar in purpose and regulation, but the repayment structure may differ.

Neither option is suitable for ongoing financial problems. Before borrowing, it's important to check whether the repayments are affordable and whether another option may be more suitable.

You can learn more about different forms of short-term borrowing on Moneyboat’s loans page, or read more about short-term loans and instalment loans.

For more information on short-term loans, read our comprehensive guide.

What is a payday advance loan?

A payday advance loan is another term people sometimes use for a payday loan.

It usually means borrowing money before payday and repaying it when your wages arrive. The word ‘advance’ suggests receiving money earlier than your usual payday, but it’s still a form of credit.

That means:

• You will usually pay interest
• You may pay fees, depending on the lender
• Your application should be assessed
• Missed repayments can affect your credit file
• The loan may not be suitable if you are already struggling financially

Before applying for a payday advance loan or any other short-term credit, check whether the repayment would leave enough money for essential costs.

How much can payday loans cost?

Payday loans and other forms of high-cost short-term credit (HCSTC) can be expensive compared with some other types of borrowing.

In the UK, high-cost short-term credit is subject to price caps. These rules apply to lenders that provide HCSTC, including Moneyboat, and limit what can be charged.

This means:

• Interest and fees are capped at 0.8% per day
• Default fees are capped
• You should never repay more in interest and fees than the amount originally borrowed

These caps limit borrowing costs, but they do not make payday loans or HCSTC low-cost borrowing. Always check the total amount repayable in pounds and pence before accepting any loan.

Cost caps for high-cost short-term credit

Read more on APR and interest rates.

What is the interest on a payday loan?

The interest on a payday loan depends on the lender, how much you borrow and how long you borrow for.

You may see the cost shown as:

• A daily interest rate
• An APR
• A total amount repayable
• A repayment amount

APR can look very high on payday loans and other short-term credit because it is calculated as an annual percentage, even when the loan only lasts weeks or months.

APR is useful for comparison, but it does not show the exact amount you’ll repay in pounds and pence. For that, check the total amount repayable and the repayment date or schedule.

What is needed for a payday loan?

Each lender has its own criteria, but you will usually need to provide personal and financial information when applying for a payday loan or short-term loan.

This may include:

• Your full name
• Your date of birth
• Your address history
• Your contact details
• Your income
• Your employment or regular income information
• Your regular outgoings
• Your bank account details
• Information about existing credit commitments

You may also be asked for documents to verify your identity, income or bank details.

A lender should also carry out credit and affordability checks. Be cautious if a company claims to offer payday loans with no credit checks or guaranteed approval.

What is a payday loan lender?

A payday loan lender is a company that provides short-term credit directly to customers.

A lender is different from a broker.

A lender provides the loan directly. A broker may introduce you to lenders or pass your details to other companies. If you use a broker, check whether they charge a fee and how your information will be shared.

In the UK, firms offering regulated credit must be authorised by the Financial Conduct Authority.

Moneyboat is a UK direct lender. Moneyboat provides high-cost short-term credit (HCSTC) with fixed repayments over 2 to 6 months, not traditional payday loans repaid in one lump sum on your next payday.

What should you look for in a payday loan company?

If you’re comparing payday loan companies or short-term lenders, focus on whether the information is clear, complete and easy to understand.

A responsible lender should tell you:

• How much you can borrow
• How much you would repay in total
• When repayments are due
• Whether interest or fees apply
• Whether a credit check will be carried out
• What happens if you miss a repayment
• How to contact them if you need help
• Whether they are a lender or a broker

Red flags to watch out for

Be careful if a company says or suggests:

• Approval is guaranteed
• No checks are needed
• Everyone is accepted
• Borrowing will solve ongoing money problems
• You need to act immediately
• The loan is risk-free
• You do not need to consider affordability

A lender should help you understand the commitment clearly. They shouldn’t pressure you into borrowing.

Can you get a payday loan with bad credit?

Some people with poor or limited credit history may still be able to apply for short-term credit, but approval is not guaranteed.

Lenders should consider your current financial situation. That includes your income, essential outgoings, existing credit commitments and whether repayments appear affordable.

If you have had credit problems in the past, take extra care before applying for more credit. Missing repayments can affect your credit file and may make borrowing more difficult in future.

You can read more about bad credit loans and what lenders may consider when reviewing an application.

Are payday loans available with no credit check?

No regulated UK lender should offer payday loans without carrying out a credit check.

Credit and affordability checks are part of responsible lending. They help lenders assess whether the loan appears manageable based on your circumstances.

A hard credit check may appear on your credit file and could affect your credit score.

If a lender claims to offer ‘no credit check payday loans' or guaranteed approval, be cautious and check whether the firm is authorised before sharing your details.

When might someone consider short-term borrowing?

Short-term borrowing may be considered for a one-off cost where repayments are affordable and manageable.

Examples could include:

• An urgent car repair
• An essential household repair
• A broken boiler
• A vet bill
• A temporary gap between paydays
• An unexpected bill

That does not mean borrowing is always the right option. Before applying, it may be worth considering whether you could:

• Use savings, if available
• Ask your employer about a salary advance
• Speak to a provider about a payment plan
• Check whether you are eligible for a local support scheme
• Contact a credit union
• Ask family or friends for help, if appropriate

If you are looking at borrowing for a specific one-off cost, you may find Moneyboat’s guides on loans to pay bills, car repair loans, and white goods loans helpful.

Before you apply: Questions to ask yourself

Before applying for any payday loan or short-term loan, it’s worth slowing down and checking the details clearly.

This checklist is for general information only and is not financial advice.

Borrowing checklist

If you are borrowing because you cannot cover regular bills or existing debts, it may be better to seek free support before applying for more credit.

Free and independent support is available from Citizens Advice, StepChange, MoneyHelper, and National Debtline. You can also see a full list of free and independent support organisations here.

Does Moneyboat offer payday loans?

No, Moneyboat does not offer traditional payday loans that are repaid in one lump sum on your next payday.

Moneyboat provides high-cost short-term credit (HCSTC) with fixed repayments over 2 to 6 months, subject to affordability checks. You’ll see your repayment schedule and total amount repayable before deciding whether to accept.

Moneyboat may appear in searches for payday loans because some people use the term ‘payday loan’ when looking for short-term borrowing. However, the product structure is different. Moneyboat loans are repaid in fixed instalments rather than as one lump sum on your next payday.

Approval is not guaranteed. Applications are subject to status and affordability checks, and Moneyboat will only offer a loan if it believes the repayments are affordable.

FAQs about payday loans

Summary: What is a payday loan?

A payday loan is a short-term loan traditionally designed to be repaid in one payment on your next payday.

Today, the phrase is often used more broadly to describe short-term borrowing. That can make it confusing, so it’s important to check how the loan actually works before applying.

Before accepting any loan, look at:

• The total amount repayable
• The repayment date or schedule
• The interest rate and APR
• Any fees or charges
• What happens if you miss a repayment
• Whether repayments fit comfortably within your budget

Important: Moneyboat does not offer traditional payday loans. Moneyboat provides high-cost short-term credit (HCSTC) with fixed repayments over 2 to 6 months. Payday loans and Moneyboat loans are both regulated as HCSTC, but their repayment structures differ. Approval is not guaranteed, and applications are subject to affordability checks.

If you’re unsure whether borrowing is right for you, advice is available from Citizens Advice, StepChange, MoneyHelper, and National Debtline. You can also see a full list of free and independent support organisations here.