The APR (Annual Percentage Rate) interest rate paid on such loans tends to be slightly higher than for larger amounts, but these rates are capped. The government loan rate cap was introduced by the FCA (Financial Conduct Authority) in 2015. This was a response to so-called ‘payday loan’ lenders offering increasingly high APR rates repeatedly to customers who were unlikely to be able to pay the amounts back. This led to a cycle of continuous borrowing for some people and later resulted in numerous compensation claims. Public pressure mounted, and the government responded by introducing new rules. The new loan rate cap limits the amount of interest and default fee that customers pay. Under the new cap, a loan taken out over 30 days will pay no more than £24 in charges per £100 borrowed. If not repaid on time, the limited default fee is £15 plus interest on the amount borrowed. Overall, a customer will now never pay back more than twice the initial loan amount.
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