As indicated by the name, a Payday Loan is a loan that is borrowed, with the agreement that it will be repaid as soon as the borrower receives their next paycheck. This implies that the amount is borrowed only for one month, and must be repaid in a single instalment along with interest. Payday Loans are also known as Cash Advances, Payday Advances, Wage Advances, or Salary Advances.

How does a Payday Loan work in the UK?

In most cases, when getting Instant Payday Loans, the borrower agrees to allow the lender to take back the money directly from their bank account. This arrangement is known as Continuous Payment Authority (CPA). Under this arrangement, as soon as you receive your next pay check, the lender will withdraw the money you owe them along with the interest.

Are Direct Lenders Payday Loans Legal in the UK?

The Financial Conduct Authority (FCA) regulates every Payday Loan in UK. As per their
guidelines, the cost of payday loans for 30 days is capped at £24 in fees and charges per
£100 Payday Loan borrowed.
Even with such regulations in place, Payday Loans are known to create financial
pressure on borrowers. It is for this very reason that the old-style Payday Loans do not
exist any longer. They have been now replaced with a loan that is similar in terms but is
characterized by more relaxed repayment terms. This new loan type is known as HCST
Loans – an abbreviation for High-Cost Short Term Loan.

What is HCST Loan?

The FCA defines HCST Loan as “an unsecured loan with an annual percentage interest rate (APR) of 100% or more and where the credit is due to be repaid, or substantially repaid, within 12 months.”

Features of HCST Loans

  • Loan Amount – £100 – £1,000
  • Repayment Period – 3 – 12 months
  • APRs – 100 – 1,500%

Are HCST Loans Regulated?

As is the case with Payday Loans, even HCST Loans are regulated by the FCA. As per the law –  No more than £24 in fees and charges will be added to each £100 borrowed for a 30-day loan.  The greatest default fee that can be assessed against the borrower, if the payments are not made in time is £15 + interest.  Interest and fees must not exceed 0.8% per day of the borrowed amount. The total cap ensures that the borrower never has to repay more than double the borrowed amount.

Is an HCST Loan Right for Me?

It can be said without doubt that the modern-day Payday Loan, now known as HCST
Loan incurs an excessively high APR – 100% or more. This makes the loan extremely
costly, and unviable for most borrowers.

Hence, you should carefully consider all your financing options before opting for this
high-interest loan. You should only take this loan, if you have any urgent financial need
that must be met immediately, and if you are very sure that you will be able to bear the
high cost of this loan. Before borrowing, you should have a sound repayment plan in
place.

You should definitely NOT take an HCST Loan if you are using the amount to pay for –

  • The settlement of other loans.
  • Materialistic pleasures such as new gadgets, clothes, concert tickets etc. that you
    simply cannot afford.


If you are unable to repay your existing debts, you can consult a debt advice agency for
free, and receive private advice and assistance from them.

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High Cost Short Term Loan FAQs

Whether you take a £100 Payday Loan or a £1000 Payday Loan, or High Cost Short Term loan as it is now known, you can use it to meet a one off expense such as an unexpected bill, an expensive car repair, an urgent home improvement project etc. However, due to the high cost of this short-term loan, you should carefully consider its need, and have a sound repayment plan in place. It is because, if you are unable to pay on time, such loans with APR of over 100% can prove to be excessively expensive in the long-run and may even lead to lasting debt problems.
These loans can offer the much needed respite when you are facing an emergency, and can help you get the required cash in a quick and convenient manner.
Yes, at Loan Broker, we make sure that we only work with FCA authorised lenders. Our lenders can be found on the Financial Services Register, and comply with all FCA regulations. We take pride in working only with lenders who can continually offer evidence of offering great customer service, treating the customers fairly, and accomplishing the duties of being a responsible lender.

Due to the high APR of HCST loan, often ranging from 100 to 1500%, it is crucial that
you carefully consider your financial situation before opting for this loan. Here are a few
aspects that need your due diligence –

  • Do you really need the loan?
  • Do you have any alternative which is more affordable?
  • If you opt for the HCST loan, will you be able to repay the loan in time?
  • Do you already have other short term loans in your name?
  • Will this short term loan affect your credit score?
You can take multiple short-term loans, as there is no regulation that states the limit to these loans. However, taking multiple loans simultaneously may make it difficult for you to repay them all on time. This, in turn, may lead to debt problems.
When you borrow a short-term loan using the services of a trusted provider such as Loan Broker, such loans are safe. That said, you must always check if the lender is authorised and regulated by the Financial Conduct Authority (FCA).
HCST loans are the most expensive loans available, which is precisely why you should only use them to meet any occasional emergency cost. A simple way to decide if the situation is worth taking this type of loan is to check if you would be financially worse off without the loan.

In order to make sure that you use this high-cost loan in a sensible manner, it is
essential that you think forward. Instead of acting on a whim, or simply out of
desperation, you should use your logical reasoning power before taking on this
expensive credit. A simple way to do so is following these steps –

  • Determine the need for this loan.
  • Research different types of credit.
  • Compare HCST loans.
  • Be honest about your upcoming income and expenses.
  • Have a sound repayment plan in place.

Find Payday Loan – With Loan Broker

Loan Broker is an FCA registered credit broker that operates across the major cities of the UK. All the lenders associated with it are also authorised by the financial regulator. The mission is to promote responsible lending and hence, our lenders perform soft credit checks to offer initial quotes. Soft credit checks are safe as they do not leave any footprint on your credit report and doesn’t even harm your credit report.

We do not charge any upfront fees to our consumers. We offer an array of unsecured loans such as – debt consolidation loans, self-employed loans, to help borrowers get back on their financial track. As a credit broker, we help our borrowers to find the right lender by considering their requirements. With Loan Broker by your side, you can choose no obligation loans. We are loan brokers, committed to extending a true hand of help for borrowers seeking hassle-free, and affordable loans despite bad credit rating.

Borrow responsibly and repay timely.