Payday loan APR explained

If you’re looking for a payday loan, you may have been shocked by the high APRs you’ve seen. But what do they actually mean?

Payday loans are one of the most expensive ways to borrow, so if you’re planning to get one, it’s important to compare lenders. While this type of borrowing is meant to tide you over for a short time, choosing the wrong loan could just create more financial strain.

But, frustratingly, choosing a loan isn’t always as straightforward as just scanning through annual percentage rates (APRs) to see which is lowest – with the apparent “lowest” rate not always the best deal.

Warning: Late repayment can cause you serious money problems. For help, go to

Please note: High-cost short-term credit is unsuitable for sustained borrowing over long periods and would be expensive as a means of longer-term borrowing.

What is APR?

The annual percentage rate (APR) is designed to provide a summary of the annual cost of borrowing, taking into account the interest and any mandatory charges. All companies issuing loans or other credit-based products like credit cards, mortgages and overdrafts have to calculate the APR for their product in the same way. The watchdog – the Financial Conduct Authority (FCA) – says that lenders must tell you the APR before you sign a loan agreement.

How does it apply to payday loans?

First off, it’s crucial to appreciate that these loans are eye-wateringly expensive, no matter how much lenders try to justify their rates. That said, the APR can be misleading when used in relation to payday loans, for the following reasons.

  • Payday loans are very short term products, traditionally covering terms of up to a month. Many payday lenders now let borrowers spread repayment over a few months, but these loans are still typically much shorter than a year. So talking about, say, a 30-day loan in terms of an annual rate can make very high interest rates (like 292%) sound sky-high when expressed as an APR (more than 1,000%). If you were to borrow £50 from a friend, and buy them a pint a week later to say “thanks”, that would translate into a similarly enormous APR.
  • Payday loans charge simple interest, not compound interest. The formula that lenders must use to calculate the APR of loans is really based on loans that charge compound interest – that’s where you pay interest on interest.
  • Many lenders charge different rates of interest depending on how much you want to borrow, and how long you want to borrow it for. However they may only display a single representative APR figure on their site, summarising the full range of loans they offer. This goes for some payday loan comparison sites too, where you may see loans with similar projected costs but wildly different APRs.
  • The rate you are offered can depend on your particular circumstances. Lenders are only obliged to award the representative APR to 51% of borrowers (that’s one of the reasons why it’s referred to as “representative”) – if they think you’re particularly high-risk, they might offer you a higher rate. In reality, the FCA has capped payday loan interest at 0.8% per day, and many lenders pitch their rates right on, or just below, this threshold.

So how should I compare lenders?

If you can’t trust the APR, what do you do? Fortunately the answer is actually quite simple.

When comparing lenders, you should first consider how much money you really need to borrow. Once you know how much you need, compare different lenders by focusing on the overall cost, also sometimes referred to as the “total payable”. Aim to keep this figure as low as possible, while ensuring you can comfortably afford the repayment schedule.

The repayment period you opt for will normally depend on the affordability of repayments. While you’ll want to pay off your loan as soon as possible, make sure the repayments are realistic for your budget so you don’t end up with further financial pressure. Many lenders charge late payment fees of up to £15, which could dramatically increase your overall bill.

Table: promoted deals, sorted by total payable
How much do you need to borrow?

How long do you need to borrow for?

1 - 6 of 6
Name Product Available Amounts Monthly repayment Total payable Link
Lending Stream Instalment Loan
£50 to £1,500
Go to site
More Info
Representative example: Borrow £200 for 6 months at a rate of 292% p.a. (fixed). Representative 1,333% APR and total payable £386.61 in 6 monthly payments of £64.44.
The Money Platform Short Term Loan
£250 to £1,000
Check eligibility
More Info
Representative example: Borrow £500 for 6 weeks at a rate of 255.5% p.a. Representative APR 839.20% and total payable: £647 in 1 payment.
QuidMarket Short Term Loan
£300 to £1,500
Go to site
More Info
Representative example: Borrow £300 for 3 months at a rate of 292% p.a. (fixed). Representative APR 1297.6% and total payable: £454.37 in 3 instalments of £151.46.
Mr Lender Short Term Loan
£200 to £1,000
Go to site
More Info
Representative example: Borrow £200 for 6 months at a rate of 292% p.a. (fixed). Representative APR 1,245.8% and total payable £367.40 in payments of £81.33, £73.23, £65.13, £57.33, £49.24, and £42.14.
With this loan your monthly repayment decreases over time. Our 'Monthly repayment' above is a representative figure designed to help compare lenders side by side.
Moneyboat Short Term Loan
£200 to £1,500
Go to site
More Info
Representative example: Borrow £400 for 4 months at a rate of 255.5% p.a. (fixed). Representative APR 939.5% and total payable: £597.48 in 4 payments of £149.37.
Fund Ourselves (Welendus) Short Term Loan
£100 to £1,500
Go to site
More Info
Representative example: Borrow £200 for 122 days at a rate of 208% p.a. (fixed). Representative 504.7% APR and total payable £286.62 in 4 monthly payments of £71.71.
Please note: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.

We compare payday/short-term loans from

Lending Stream Instalment Loan
The Money Platform Short Term Loan
QuidMarket Short Term Loan
Mr Lender Short Term Loan
Moneyboat Short Term Loan
Fund Ourselves (Welendus) Short Term Loan

Dos and don’ts for comparing payday loans


  • Explore your other options, such as a credit builder credit card or borrowing from a friend or family member. These could be significantly less costly in the long run. Applying for a payday loan should be a last resort.
  • Concentrate on the overall cost when comparing loans. The lowest APR offered might not be the best deal for you.
  • Remember that as a general rule of thumb, the longer the repayment plan, the more the loan will cost you overall. A loan with a better rate is one thing, but if it means borrowing over a much longer term than you had planned, this could be a false economy. However…
  • Check the early repayment terms of any loans you’re considering. If a longer loan has a better rate, but you can repay it early and only pay interest on the days on which you were borrowing, taking out that loan could work out cheaper overall for you.


  • Apply for a loan if you can’t afford the monthly repayments. Be realistic about your budget.
  • Apply for the loan with the lowest APR, without considering the overall cost.
  • Submit multiple applications in a short space of time – this could impact negatively on your credit score and put off lenders.
  • Take out a payday loan for a non-essential expense.
  • Use payday or short term instalment loans often, or over longer periods.

The bottom line

When comparing short term loans, the APR can be pretty useless, and shouldn’t be your guiding factor when looking for the best deal. Focus on the total repayment amount to guide your decision, which can vary depending on the loan amount, the size and frequency of the repayments, and your credit history.

A payday loan should always be considered your last option when you’ve explored all other alternatives. It remains one of the most expensive ways to borrow, despite an FCA crackdown a few years ago.

If you do decide to apply, make sure the repayment plan and costs are realistic to your financial status.

Frequently asked questions

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.

More guides on Finder

  • Loans like Fund Ourselves

    Browse a list of lenders, like Fund Ourselves, offering flexible short-term loans.

  • Finder Lending Innovation Awards 2022

    These awards recognise innovation in the areas of credit cards, loans, mortgages and BNPL. We reveal this year’s winners.

  • Loans like Polar Credit

    Polar Credit is the new short term lender on the block, offering an ongoing line of credit to cover unexpected shortfalls. Discover other companies like Polar Credit, offering innovative short term borrowing facilities.

  • Loans like Tappily

    A list of lenders which, like Tappily, are shaking up the UK short term lending market with innovative credit lines, instalment loans and membership plans

  • Lending Innovation Awards 2021

    These awards recognise innovation in the areas of credit cards, loans, mortgages and BNPL. We reveal this year’s winners.

  • Overdraft statistics

    We find out how often Brits are going overdrawn in the UK and how new regulations are set to shake up the industry.

  • Loans like Credio

    Credio was a popular source of short-term credit online until the lender stopped issuing loans in 2018.

  • Cheque cashing

    If you need to cash a cheque, it can take three days to clear it with a bank. Cheque cashing services give you immediate access to your money.

  • 15 alternatives to payday loans

    If you’re looking for a quick financial fix, payday loans aren’t your only option.

  • Bamboo unsecured personal loan review March 2023

    Bamboo offers fixed-rate unsecured personal loans up to £8,000 without a guarantor.

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site