How Much Does a Payday Loan Cost?
The cost of a payday loan depends on the amount borrowed, the repayment period and the rate offered by the lender. The figure that matters most is not just the monthly repayment or the APR, but the total amount repayable.
Before accepting any offer, check exactly how much you will repay in pounds and pence, when each payment is due and what happens if a payment is late.
How Is the Cost Worked Out?
Payday and other high-cost short-term loans are usually priced using a daily or annual interest rate. The lender must show the key figures before you sign the agreement.
Compare:
- the amount borrowed;
- the length of the loan;
- the monthly or scheduled repayment;
- the interest rate;
- the representative APR;
- the total interest charged;
- the total amount repayable;
- any default or late-payment charges.
What Does the Price Cap Mean?
UK high-cost short-term credit is subject to a price cap. The cap limits the daily cost, restricts default charges and prevents borrowers from repaying more than twice the amount originally borrowed in interest and charges.
The cap is a maximum, not a standard price. Some offers may cost less, so it still pays to compare the total repayment between lenders.
Why Can the APR Look So High?
APR converts the cost of borrowing into an annual percentage. Payday loans are normally repaid over a much shorter period, so annualising the cost can produce a very large-looking figure.
APR is still useful for comparing products, but for a short-term loan you should also focus on the actual cash cost and total amount repayable.
Our guide to advertised APRs explains representative rates and why the offer you receive may differ from the headline figure.
What Is a Representative Example?
A representative example shows how a typical loan might be priced. It usually includes the loan amount, repayment term, monthly repayment, interest rate, representative APR and total amount repayable.
It is an illustration rather than a personal quotation. Your own offer may be different depending on the lender’s assessment of your application.
Does a Longer Term Cost More?
Often, yes. Spreading repayments over more months can reduce the monthly amount but increase the total interest paid.
A lower monthly repayment is not automatically the cheaper option. Compare the full repayment total before deciding whether the term is suitable.
Are There Charges for Late Payments?
A lender may apply a default charge if the agreement allows it. Interest may also continue while the balance remains unpaid, subject to the applicable price cap.
If you think you will miss a payment, contact the lender before the due date. Our guide What Happens If I Cannot Repay My Payday Loan? explains the steps to take.
Can Early Repayment Reduce the Cost?
Repaying early may reduce the interest because the money is borrowed for less time. Ask the lender for an early-settlement figure so you know the exact amount required.
Do not assume the saving from early repayment will be the same on every loan. Check the agreement and the lender’s settlement calculation.
How Can You Keep the Cost Down?
- Borrow only the amount you genuinely need.
- Choose the shortest term that keeps the repayments affordable.
- Compare the total amount repayable, not just the monthly figure.
- Check whether a lower-cost alternative is available.
- Avoid taking another loan to repay the first one.
- Contact the lender early if your circumstances change.
Use our Budget Calculator before applying to see whether the repayment fits alongside your normal household costs.
Are There Cheaper Alternatives?
Depending on the reason for borrowing, alternatives may include using savings, arranging time to pay a bill, asking an employer about a salary advance, borrowing from a credit union or seeking free debt help.
Our Alternatives to Bad Credit Loans guide explains the main options.
How Badger Loans Works
Badger Loans is a credit broker, not a lender. We do not set the interest rate or decide the total cost of the loan. Any offer will come from the lender, who will provide the full repayment details before you accept it.
Read What to Consider Before You Apply for a Payday Loan and visit our Payday Loans page for more information.
Badger Loans does not charge customers to submit an application.
