Finance Glossary

Payday Loan

A short-term, high-cost loan typically designed to bridge the gap to your next payday. Payday loans are usually for small amounts (£100–£1,000) over a very short term (a few weeks to a month). In the UK, they are regulated by the FCA cost cap, which limits interest to 0.8% per day and caps total repayment at double the amount borrowed.

Example

You borrow £300 until your payday in three weeks. Under the FCA cost cap, the maximum interest charged is 0.8% × £300 × 21 days = £50.40.