Payday Loan Cost Caps Explained

In the UK, payday loans are subject to strict legal limits designed to protect borrowers from excessive costs.
This page explains how payday loan cost caps work, what they mean in practice, and how Cashfloat applies these protections as a fully regulated UK lender.

Who Sets Payday Loan Cost Limits?

All UK payday lenders must follow rules set by the Financial Conduct Authority. These rules were introduced to ensure that short-term credit remains transparent, capped, and fair, regardless of a borrower’s credit history. Cashfloat has operated under this regulatory framework since 2014.

The current regulations in effect are:

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The Daily Interest Cap (0.8%)

By law, payday lenders cannot charge more than 0.8% interest per day on the amount borrowed.

This means interest is calculated daily rather than monthly, but cannot exceed the legal limit, even for borrowers with poor credit. Interest stops accruing once the total cost cap (explained below) is reached.

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The Late Payment Fee Cap (£15 Per Loan)

If a repayment is missed, the maximum late fee allowed is £15 per loan, not per missed payment.

This protects borrowers from repeated penalty charges and escalating fees. No additional interest can be added to missed payments beyond the original loan agreement.

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The Total Cost Cap (100%)

One of the most important borrower protections is the total repayment cap. Under FCA rules:

  • You will never repay more than 100% of the amount borrowed
  • This includes all interest and fees combined

For example, if you borrow £500, the most you could ever repay – even if you struggle – is £1,000. Once this cap is reached, no further charges can be added.

A Representative Example

To help borrowers understand costs clearly, lenders must provide a representative example.

Cashfloat’s Representative example:

  • Borrow £700 over 6 months
  • Total amount repayable £1,179.05
  • Interest £479.05
  • 1st monthly repayment of £168.45, 4 monthly repayments of £224.60, last monthly repayment of £112.20

You can repay early at any time with no penalties.

This example reflects how costs are presented before you commit.



Early Repayment and Cost Control

If you repay your loan early:

  • You only pay interest for the time you’ve actually borrowed the money
  • No early repayment fees apply
  • Your loan can be closed as soon as it’s repaid

This gives borrowers more control if their financial situation improves.



What Happens If You Struggle to Repay?

If you’re having difficulty meeting a repayment, it’s important to contact your lender as early as possible.

At Cashfloat, we aim to:

  • Discuss affordable repayment options
  • Apply flexibility where appropriate
  • Help prevent unnecessary damage to your credit record

Ignoring the problem can make things harder – early contact is always better.



Payday Loans Are Short-Term Credit



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