Before You Borrow From an Online Lender: A Checklist

Short-term loans online move fast, which is exactly why the checks matter. Work through this list before you submit an application: confirm the firm, test the quote against the cost cap and read how repayment works.

An online loan application takes minutes, and that speed cuts both ways: money arrives quickly, but there is little time to check who you are dealing with and what the loan will really cost. This checklist covers verifying the firm, reading the quote, understanding how repayment will be collected and spotting the signs of an unauthorised lender. For the basics, how payday loans work in the UK explains the mechanics in plain terms.

Check the FCA Register First: What the Firm Number Tells You

• Search the FCA Firm Checker for the lender’s exact name. Almost all financial firms in the UK must be authorised or registered by the Financial Conduct Authority (FCA), and the checker shows whether a firm has permission for the product it is offering.
• Match the register details with the lender’s website. The company name, address and contact details should agree. Any mismatch is a reason to stop.
• Confirm the permissions, not just the name. A firm can be authorised for one activity and not another, so check it holds permission for the lending being offered.
• Allow for a short lag. The Firm Checker may take, on average, up to 24 hours to update, so a very new firm might not appear immediately.
• Note any appointed representative status. Some firms trade under the oversight of a larger authorised firm, called their principal. If the representative strays beyond what the principal permits, the Financial Ombudsman Service or the Financial Services Compensation Scheme may not cover you.

Look for the Real Cost: APR, Total Amount Repayable and the Price Cap

• Expect interest and fees capped at 0.8% per day of the amount borrowed. The FCA price cap, introduced in January 2015, applies to high-cost short-term credit loans.
• Check the default charge. If a loan is not repaid on time, the one-off default fee cannot exceed £15.
• Look for the total cost limit. Fees and interest together are capped at 100% of the original sum, so no borrower repays more than twice what they borrowed.
• Use the benchmark figure. Someone borrowing £100 for 30 days and repaying on time should pay no more than £24 in interest and charges. When the cap took effect, several large lenders charged that maximum, so a much lower quote usually points to a credit union.
• Read the total amount repayable, not just the daily rate; the quote should state the full figure and the collection date.
• Look for a price comparison link. Online lenders must advertise on at least one price comparison website and show a link to it.

Repayment Dates, Amounts and the Continuous Payment Authority

• Confirm the repayment date against your pay date, and check the exact amount to be collected, including all interest and fees rather than just the sum borrowed.
• Understand how the money will leave your account. Most online lenders use a continuous payment authority (CPA), which lets them take payments from your debit card without your approval for each one. How to stop one is covered in our guide to continuous payment authorities.
• Expect a cost summary if you have borrowed from the firm before; it must cover the most recent loan and the cumulative cost over the previous 12 months.

What the Small Print Says About Rollovers and Late Fees

• Read what the contract says about extending or rolling over the loan. Rollovers are a main way a small loan becomes a long-running debt, and our guide to rollovers and extensions explains why the debt can grow.
• Check the late payment terms. Default charges are capped at £15, interest can continue to build after a missed payment, but the total you owe can never exceed twice what you borrowed.
• Check how the agreement describes repeat collection attempts after a failed payment, so nothing comes as a surprise.
• Be honest about repayment. If paying the loan back would leave you short of essentials, the problem is the amount, not the small print. Affordability checks explains what lenders must look at, and a lender that skips those questions is a warning sign in itself.

Signs of a Copycat or Unauthorised Lender

• Check for clone firms. The Financial Services Register lists the details unauthorised firms give out and flags those passing themselves off as authorised firms.
• Search the FCA’s Warning List, which names firms the regulator has published warnings about.
• Treat promises of guaranteed approval as a red flag. The FCA’s scam guidance is blunt: if it sounds too good to be true, it probably is.
• Walk away from any firm the register shows as unauthorised. Unauthorised lending is a criminal matter, and people can be fined and imprisoned for it.
• Remember the register is one check, not a guarantee. The Firm Checker cannot confirm whether Ombudsman or compensation scheme protection will definitely apply.

Questions to Ask Yourself Before You Submit the Form

• Is this expense a genuine emergency, or can it wait until payday?
• Have I compared cheaper options first, such as a credit union loan, a hardship grant or an agreement with family?
• Does the total amount repayable fit my budget on the collection date?
• What happens to my finances if my pay arrives late or is smaller than expected?
• Am I borrowing to cover a gap that free debt advice or benefit support could address instead?

Open the FCA Firm Checker and search the lender’s name before you fill in anything else; if the firm or its lending permission does not appear, close the page and keep your details to yourself.

Your questions answered

Q: How do I check if an online lender is authorised?

A: Search the lender’s name on the FCA Firm Checker, which shows whether a firm is authorised and has permission for the product it is offering. Match the company name, address and contact details on the register with those on the lender’s website.

Q: What is the most I can be charged on a payday loan?

A: Interest and fees are capped at 0.8% per day of the amount borrowed, default charges cannot exceed £15, and the total cost is capped at 100% of the original sum. That means no borrower ever repays more than twice what they borrowed.

Q: What is a clone firm?

A: A clone firm is an unauthorised firm that claims the identity of a real, authorised business. The Financial Services Register lists the details known clone firms give out, so compare them carefully with the details of the firm contacting you.

Q: What happens if I cannot repay on time?

A: The lender can charge a one-off default fee of up to £15, and interest can continue to build, though the total you owe can never exceed twice the amount borrowed. If you expect trouble repaying, free debt advice services can help you look at your options.

This guide is general information, not financial advice. Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk. We don’t arrange loans or work with lenders. Before borrowing, check the lender is authorised on the FCA register, and consider free debt advice from MoneyHelper, StepChange, National Debtline or Citizens Advice.