FCA Cost Cap Explained: Your Borrowing Rights in 2026
Paul · Head of Lending Research & Content
Published 1 April 2026 · 8 min read
If you have ever borrowed a short term loan in the UK, the FCA’s cost cap is the single piece of regulation that protects you most directly. Introduced in January 2015, it limits how much lenders can legally charge — and with an ongoing regulatory review underway in 2026, it is worth understanding exactly what it does, what it does not cover, and where it may be heading.
What Is the FCA Cost Cap?
The Financial Conduct Authority (FCA) introduced a legally binding price cap on high-cost short-term credit (HCSTC) on 2 January 2015. Before the cap, some lenders charged rates that resulted in borrowers owing many multiples of the original loan amount through compounding interest and charges.
The cap has three components:
Daily interest and fee cap
Interest, fees, and other charges cannot exceed 0.8% per day of the outstanding principal. For a £100 loan, the maximum daily charge is 80p.
Default fee cap
If you miss a repayment, the lender can charge a maximum one-off default fee of £15. They cannot add multiple or escalating default charges.
Total cost cap
The total amount you repay in interest, fees, and charges can never exceed the original loan amount. If you borrow £300, you will never repay more than £600 in total.
Which Loans Does the Cap Apply To?
The cap applies to high-cost short-term credit (HCSTC), which the FCA defines as consumer credit with an APR of 100% or more, with a term of 12 months or less. In practice, this covers traditional payday loans and most short term instalment loans.
The cost cap does not apply to:
- Standard personal loans (typically below 100% APR)
- Overdrafts (regulated separately)
- Credit cards
- Buy now pay later products (regulated separately from 2026)
- Guarantor loans
- Logbook loans
- Home collected credit (doorstep lending)
These other products have their own regulatory frameworks but do not benefit from the same hard cost ceiling. If you are considering any product not covered by the cap, check the total repayable figure carefully.
The 0.8% Daily Cap in Practice
The 0.8%/day figure is a maximum, not a standard rate. Many competitive lenders charge significantly less. Here is what the cap means in real money:
The 100% total cap is a separate, additional protection. Even if you roll over a loan or incur default fees, the total you repay in charges can never exceed the original principal.
Additional FCA Protections for Borrowers
The cost cap is not the only protection available. FCA rules for short term lenders also include:
- Affordability checks — lenders must assess whether you can repay without undue hardship
- Rollover limit of two — a loan can only be rolled over (extended) twice; after that the lender must refer you to free debt advice
- CPA limits — lenders can only make two failed Continuous Payment Authority attempts before they must stop; they cannot part-collect from your account
- Risk warnings — all advertising must carry clear cost warnings
- Consumer Duty — since July 2023, all FCA-regulated firms must demonstrate they deliver good outcomes for customers, including fair value and support in difficulty
The FCA Price Cap Review: What It Means in 2026
The FCA is actively reviewing the HCSTC price cap as part of its 2025/26 consumer credit priorities. The review is examining whether the cap continues to deliver the right balance between consumer protection and market access.
Paul’s take on the review:
“The FCA’s concern is that the cap may have pushed some higher-risk borrowers towards unregulated lenders or illegal loan sharks — the opposite of its intention. The review is looking at whether a two-tier structure (different caps for different risk profiles) might serve consumers better. That said, any change is unlikely before 2027 given the typical FCA consultation timeline. The 0.8%/day cap remains in full force today.”
Key questions the FCA review is exploring:
- Has the cap led to significant market exit and reduced credit access for higher-risk borrowers?
- Are borrowers being excluded by the cap turning to higher-risk alternatives?
- Does the Consumer Duty framework provide sufficient additional protection to allow some cap relaxation?
- Should buy now pay later and other emerging products be brought under similar cost controls?
The FCA has committed to publishing its findings in H2 2026. Until any new rules take effect, the current 0.8%/day cap applies to all HCSTC in full.
What to Do If a Lender Exceeds the Cap
If you believe a lender has charged you more than the FCA cap allows, you have the following options:
- Raise a formal complaint with the lender in writing — they must respond within 8 weeks
- If unresolved, escalate to the Financial Ombudsman Service (financial-ombudsman.org.uk) — free to use
- Report the lender to the FCA at fca.org.uk/consumers/report-financial-service-provider
- Seek free legal advice from Citizens Advice if the lender is unregulated
Any lender offering credit to UK consumers must be authorised by the FCA. You can verify any lender on the FCA Register at register.fca.org.uk. If a lender is not on the register, do not borrow from them.
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See all lenders →Frequently Asked Questions
What is the FCA cost cap on short term loans?
The FCA caps the cost of high-cost short-term credit (HCSTC) at three levels: 0.8% per day in interest and fees, a fixed default fee maximum of £15, and a 100% total cost cap — meaning you can never repay more in charges than you originally borrowed.
When did the FCA cost cap come into force?
The cost cap was introduced by the FCA on 2 January 2015. It has remained unchanged since introduction. The FCA is conducting a review of the cap with findings expected in the second half of 2026.
Does the cost cap apply to all loans?
No. The cap applies specifically to high-cost short-term credit (HCSTC) — loans with an APR of 100% or more with a term of 12 months or less. It does not apply to standard personal loans, overdrafts, credit cards, or buy now pay later products.
What happens if a lender exceeds the cost cap?
Any interest or fees that would take the total cost above 100% of the original loan amount are simply unenforceable. The borrower is not legally required to pay any amount above the cap.
What are the FCA affordability rules for short term loans?
All FCA-authorised short term lenders must perform robust affordability checks before approving a loan. They must assess whether repayment is sustainable without the borrower having to borrow again. Lending without adequate affordability assessment is a breach of FCA rules.
Is the FCA changing the cost cap in 2026?
The FCA has been reviewing the HCSTC price cap as part of its 2025/26 regulatory priorities. It is examining whether the cap continues to protect consumers while preserving market access for higher-risk borrowers. Findings are expected in H2 2026. No changes have been announced as of April 2026.
Can a lender roll over my loan more than twice?
No. FCA rules cap rollovers at two. After two rollovers, the lender must provide information about free debt advice and cannot roll the loan over again. Each rollover increases your total cost, so avoiding them entirely is strongly advisable.