Borrowing guides

Anyone claiming benefits who faces a one-off cost or a wait for a first payment may be able to borrow from the Department for Work and Pensions (DWP) instead of turning to a commercial lender. This guide covers the schemes described on GOV.UK for Great Britain. Universal Credit is run separately in Northern Ireland, where GOV.UK points claimants to a different service, so anyone there should check the Northern Ireland arrangements. These are advances repaid through benefit deductions, which makes them a different product from a regulated cash advance, but they still create a debt.

Advance on a first Universal Credit payment

GOV.UK explains that someone who needs help with bills or other costs before the first Universal Credit payment arrives can apply for an advance. The amount depends on circumstances, and the most that can be provided is the amount of the first estimated payment. An applicant has to explain why the advance is needed, verify their identity, supply bank account details and explain any money or savings they hold. Applications can be made through the journal in the Universal Credit account, through a Universal Credit contact at the local jobcentre or work coach, or by phoning the Universal Credit helpline. GOV.UK says the outcome is usually known the same day.

How the first-payment advance is repaid

The advance must usually be repaid within 24 months, and repayments normally start from the first payment. GOV.UK’s worked example shows an advance of £344 repaid at £14.33 a month, leaving £329.67 on the first payment date. A claimant who cannot afford the repayments can ask for them to be delayed for 3 months. A claimant who stops claiming Universal Credit still has to repay: deductions usually continue if they move to another benefit, and if they leave benefits DWP Debt Management writes to explain how to repay in full or by monthly instalments.

Budgeting Advance for one-off costs

People who already get Universal Credit may be able to get a Budgeting Advance. GOV.UK lists the intended uses as furniture, household items such as a cooker or washing machine, essential items for a family such as mobility aids or child safety products, clothes or footwear, repairs or security for a home, funeral expenses, and a tenancy deposit or removal costs. It says an advance cannot be used for ongoing costs such as food, household bills such as gas or electricity, rent or paying off debts.

To qualify, an applicant needs to have been getting Universal Credit, Employment and Support Allowance or Pension Credit for 6 months or more, or need the money to start a new job or stay in work. The guidance says people are not eligible if they have earned more than £2,600 (£3,600 together for couples) in the past 6 months or have not paid off a previous Budgeting Advance, since only one can be held at a time. The smallest amount is £100, and the maximum is £348 for a single person, £464 for a couple and £812 for someone with children. Repayment is usually over 24 months through Universal Credit payments, and repayments can be delayed for up to 6 months on request.

Budgeting Loans for legacy benefits

A separate Budgeting Loan is available to people who have been getting Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance or Pension Credit for the past 6 months. GOV.UK says anyone who currently gets Universal Credit cannot get a Budgeting Loan and should apply for a Budgeting Advance instead, that Crisis Loans are no longer available, and that only the amount borrowed is repaid, with repayments taken automatically from benefits. The listed amounts are the same £348, £464 and £812 bands, subject to affordability and savings tests, and a person owing more than £1,500 in total for Crisis Loans and Budgeting Loans cannot borrow again.

Why the comparison matters

For Budgeting Loans GOV.UK says only the amount borrowed has to be repaid, and none of the pages describes an interest charge on the advances. All of them reduce future benefit income, so a claimant should think about affordability in the same way as with any credit. For a wider look at other options, see our guide to alternatives to a cash advance, and for help managing debts see free debt advice.

FAQs

Do I pay interest on a Universal Credit advance?

The GOV.UK guidance describes repaying the advance amount through deductions and does not describe any interest charge. For Budgeting Loans it says only the amount borrowed has to be repaid.

Can I use a Budgeting Advance to pay off a loan?

No. GOV.UK says it cannot be used for paying off debts, or for ongoing costs such as household bills and rent.

What if I cannot afford the repayments?

The guidance says repayments can be delayed for 3 months on a first-payment advance, or up to 6 months on a Budgeting Advance, by contacting DWP.

Do I still owe the advance if I stop claiming?

Yes. The advance must still be repaid, either through continued deductions from another benefit or through arrangements with DWP Debt Management.

The bottom line

For people already on benefits in Great Britain, DWP advances and loans can cover a wait for a first Universal Credit payment or a one-off essential cost without going to a commercial lender. They are repaid from future benefits, usually over 24 months, and have their own eligibility rules, purposes and limits. This is general information, not financial advice; anyone unsure which option fits should speak to a free adviser.

Sources

• GOV.UK, “Apply for a Universal Credit advance or hardship payment: Get an advance on your first payment”
• GOV.UK, “Apply for a Universal Credit advance or hardship payment: Get an advance for unexpected costs”
• GOV.UK, “Budgeting Loans: Check if you’re eligible”
• GOV.UK, “Budgeting Loans: What you could get”
• GOV.UK, “Universal Credit: What Universal Credit is”

Anyone struggling to keep up with a cash advance, loan or other credit commitment in the United Kingdom has a free, government-backed source of advice available before turning to a commercial debt management company, and it is worth understanding exactly what that service is and how it is structured.

Who runs it

MoneyHelper is the public-facing brand operated by the Money and Pensions Service, an executive non-departmental public body sponsored by the Department for Work and Pensions. MaPS was originally established as the Single Financial Guidance Body on 1 October 2018, taking on that name officially before rebranding to the Money and Pensions Service in April 2019. It was created by bringing together three previously separate government-backed guidance services: the Money Advice Service, the Pensions Advisory Service and Pension Wise, into a single organisation.

What MaPS and MoneyHelper actually provide

MaPS provides free and impartial debt advice, money guidance and pension guidance to members of the public across the UK. In practice this means MoneyHelper both delivers guidance directly through its own website and telephone service, and funds a network of free debt advice providers across the country, so that a person struggling with debt is not required to pay a fee to get structured, professional advice on their options.

How the advice is delivered

Support is available through multiple channels depending on how someone prefers to get help, including a telephone helpline, webchat, and, where needed, referral toward face-to-face advice through the wider funded network. A dedicated debt advice locator tool is available to help someone find free, confidential debt advice services covering their part of the UK, alongside self-service tools such as a bill prioritiser designed to help someone work out which payments matter most when money is tight.

Why free advice differs from a commercial provider

The core distinction between MoneyHelper-funded advice and a commercial debt management company is how the adviser is paid. A free debt adviser working through the MaPS-funded network is paid through public funding and, for free debt management plans, sometimes through a fair-share contribution from creditors, rather than by charging the person in debt directly. A commercial debt management company, by contrast, typically charges the customer a fee, which reduces the amount actually going toward clearing the underlying debt each month. Because both routes can ultimately arrange broadly similar solutions, such as a debt management plan, the practical difference for someone in debt is largely about cost and, since MaPS-funded advisers operate on a not-for-profit, impartial basis, potentially about the range of options presented.

When to use it

Free debt advice through MoneyHelper is relevant at any point a borrower is struggling to make repayments on a cash advance, loan, credit card or other commitment, not only once accounts are already in serious arrears; an adviser can help assess whether options such as a debt management plan, a Debt Relief Order, an IVA, or simply a revised budget are appropriate before a situation deteriorates further. Lenders regulated by the FCA are themselves required to point customers in financial difficulty toward this kind of free advice as part of their obligations under the FCA’s arrears and forbearance rules.

What an adviser will actually do

A free debt adviser working through the MaPS-funded network will typically start by reviewing income, essential spending and the full list of debts, using that to work out what, realistically, can be paid toward non-priority debts such as a cash advance or credit card each month once priority commitments like rent, council tax and energy bills are covered. From there the adviser sets out the range of options that genuinely fit the person’s circumstances, which can include an informal arrangement with individual creditors, a formal debt management plan, or, where the debt and circumstances meet the criteria, a statutory route such as a Debt Relief Order or an Individual Voluntary Arrangement. Because the adviser has no commercial interest in steering someone toward a particular product, the recommendation is intended to reflect what suits the borrower’s situation rather than what generates the most revenue for the provider.

Getting the most out of a free advice appointment

Coming to an appointment with a clear picture of income, outgoings and every outstanding debt, including balances, minimum payments and any arrears already built up, allows an adviser to give a more accurate assessment in a single conversation rather than needing several follow-up calls to gather missing information. Because MoneyHelper-funded advice is free regardless of how many times it is used, there is no financial reason to delay a first appointment until a situation has already become unmanageable.

FAQs

Does MoneyHelper charge for debt advice?

No. Advice through MoneyHelper and the wider MaPS-funded network is free at the point of use.

Is MoneyHelper the same organisation as the Money and Pensions Service?

MoneyHelper is the public-facing service brand; the Money and Pensions Service is the government-sponsored body that runs it.

How do I find a free debt adviser near me?

MoneyHelper provides a debt advice locator tool to find free, confidential debt advice services covering a specific part of the UK.

Can a commercial debt management company offer something MoneyHelper’s network can’t?

Both routes can arrange similar solutions such as a debt management plan, but a commercial provider typically charges the customer a fee, whereas the MaPS-funded network does not.

The bottom line

MoneyHelper is the free, government-backed debt advice service run by the Money and Pensions Service, an executive non-departmental public body sponsored by the Department for Work and Pensions, and it funds a wider network of free advisers across the UK as an alternative to paying a commercial debt management company. This is general information, not financial advice on a specific debt situation; anyone struggling with repayments should speak to a free adviser about their own circumstances.

Sources

• GOV.UK, “Money and Pensions Service”

Peer-to-peer lending platforms match individual and institutional lenders directly with borrowers, outside the traditional bank or short-term credit model, and in the United Kingdom they have been brought progressively under the same regulatory umbrella that covers other forms of consumer credit. For a borrower comparing a P2P loan against a bank loan or a cash advance, what that regulation actually requires from the platform is worth understanding.

When P2P lending became regulated

The FCA took over responsibility for regulating consumer credit, including loan-based crowdfunding, in April 2014, bringing P2P platforms operating in the UK within its authorisation regime for the first time. Since then, a platform arranging peer-to-peer loans has needed FCA authorisation to operate legally, the same basic requirement that applies to a conventional short-term lender.

The December 2019 rule changes

The FCA tightened the regime substantially with new rules that took effect on 9 December 2019, introduced specifically to address concerns about transparency, governance and risk management across the sector. Under these rules, a platform must have explicit governance arrangements and systems in place for assessing and pricing the credit risk of the loans it arranges, rather than simply matching lenders and borrowers with limited underwriting. Platforms are also required to maintain wind-down arrangements, meaning a plan for how existing loan agreements would continue to be administered if the platform itself failed or ceased trading, so that a loan does not simply collapse into administrative limbo if the business behind it closes.

What this means for a borrower specifically

Because platforms are required to categorise borrowers by credit risk in a systematic way, taking into account the probability of default and the likely loss if a default happens, and to price loans so the price reflects that risk fairly, a borrower applying through a regulated P2P platform is going through a credit risk assessment broadly comparable in principle to that of a conventional regulated lender, even though the money being lent ultimately comes from individual or institutional investors rather than a bank’s own balance sheet. The platform, not the individual lenders, is the FCA-authorised firm responsible for meeting these requirements.

The investor-facing side of the rules

Much of the December 2019 rule change was aimed at protecting the people lending the money rather than the people borrowing it: retail investors new to P2P lending are now generally restricted from putting more than 10% of their investable assets into P2P agreements, unless they have received regulated financial advice, and platforms must assess whether an investor understands the risks before allowing them to lend without advice. This matters to a borrower only indirectly, but it reflects the same underlying purpose as the borrower-facing rules: making sure the platform is run with proper risk controls rather than simply maximising loan volume.

Checking a platform is actually authorised

Because authorisation is what brings a P2P platform’s credit risk assessment, governance and wind-down obligations into force in the first place, checking that a specific platform is on the FCA’s Financial Services Register, and authorised for the specific activity of operating an electronic system in relation to lending, is the starting point before borrowing through it. A platform operating without that authorisation is outside the framework described here entirely, regardless of what its marketing claims.

Home finance P2P agreements

Where a platform arranges P2P agreements secured on property and involving non-professional investors, an additional layer of rules applies: the FCA’s Mortgage and Home Finance Conduct of Business sourcebook extends its usual consumer protections to that segment of the market, on top of the general P2P rules. This matters for a borrower using a property-secured P2P loan specifically, since it brings in protections closer to those a conventional mortgage borrower would expect, rather than the lighter-touch rules that apply to unsecured P2P consumer lending.

How P2P borrowing compares with a cash advance

A P2P loan and a short-term cash advance are both regulated forms of credit, but they differ in how the money is actually sourced and priced: a cash advance is funded and priced by the lender’s own balance sheet against its own risk appetite, while a P2P loan’s rate is shaped by what individual and institutional lenders on the platform are willing to accept for that borrower’s assessed risk category. In practice this can mean P2P pricing is more sensitive to a borrower’s individual credit profile than a flat-rate short-term product, so comparing the total cost, not just the headline rate, across both types of platform is worth doing before choosing either route.

FAQs

Do P2P platforms have to check I can afford a loan?

Yes. As FCA-authorised firms, they are required to assess and price credit risk systematically, which includes evaluating a borrower’s likelihood of being able to repay.

What happens to my loan if the P2P platform I borrowed through goes out of business?

Regulated platforms are required to have wind-down arrangements in place so existing loan agreements continue to be administered rather than simply left unmanaged if the platform fails.

Is P2P lending regulated differently from a bank loan?

It sits within the same broad FCA consumer credit framework, but with additional platform-specific rules covering governance, risk pricing and investor protection that do not apply to a bank lending its own money.

When did the stricter P2P rules take effect?

9 December 2019.

The bottom line

Peer-to-peer lending platforms operating in the UK have needed FCA authorisation since April 2014, and since 9 December 2019 have faced stricter requirements covering credit risk assessment, governance and wind-down planning. For a borrower, that means an authorised platform is required to assess and price credit risk in a structured way and to have a plan for what happens to existing loans if the platform itself fails. This is general information, not financial advice on a specific loan or platform.

Sources

• FCA, “FCA confirms new rules for P2P platforms”

A growing number of UK employers now offer staff the option to draw down part of their pay before payday, through a scheme usually run by a third-party provider and marketed as a modern alternative to a payday loan or credit card. These schemes sit in an unusual position: widely used, but largely outside the consumer credit regulation that governs a conventional cash advance.

Why most schemes are not regulated as credit

The FCA’s stated position is that an early advance of already-earned salary, provided through an employer’s own scheme, does not generally involve the provision of credit in the way the Consumer Credit Act and the FCA’s own rules define it, because the employee is simply accessing money they have already earned rather than borrowing against future income. That means most earned wage access and employer salary advance schemes fall outside the authorisation, affordability-check and disclosure requirements that apply to a regulated cash advance or short-term loan.

The costs the FCA has flagged

Even though these schemes are not credit in the regulatory sense, the FCA has pointed out that they are not free either: providers typically charge a transaction fee each time an employee draws down early pay. The FCA’s concern is that a fee which looks small on a single transaction can, once measured as an effective interest rate over the short period between the advance and the next payday, work out equivalent to a rate above the price cap that applies to genuinely regulated high-cost short-term credit, particularly for an employee who uses the facility repeatedly in the same pay cycle.

No affordability check, no credit file record

Because these schemes are not regulated credit, providers are under no legal obligation to run an affordability check before allowing an employee to draw down pay, unlike a lender offering a regulated cash advance, which must assess affordability under FCA rules before agreeing the loan. The FCA has also flagged that credit reference agencies do not record salary advance usage in the way they record other borrowing, so a lender assessing an application for a mortgage, credit card or loan elsewhere may have no visibility of how often, or how heavily, an applicant relies on salary advances, which can distort how accurately that lender judges the applicant’s actual financial position.

The repeat-use warning sign

The FCA has specifically linked frequent, repeated use of a salary advance scheme within the same pay period to a risk of underlying financial difficulty, the same pattern regulators watch for with high-cost credit generally. Its guidance encourages employers and scheme providers to monitor usage patterns, flag employees who draw down repeatedly, and signpost them toward free debt advice organisations such as Citizens Advice or StepChange rather than simply allowing the facility to be used as a routine top-up to normal pay.

What the FCA recommends instead

Rather than bringing every scheme into full consumer credit regulation, the FCA has encouraged the market to raise its own standards, including through fee-free models where the employer, rather than the employee, absorbs the provider’s cost, and through clearer messaging that a salary advance does not resolve an underlying budgeting or affordability problem, only defers it earlier into the same pay cycle. The Chartered Institute of Payroll Professionals introduced a voluntary code of practice for providers in response to the FCA’s concerns, and the FCA has said it will continue monitoring the sector, including watching for new business models, as it develops.

FAQs

Is a salary advance scheme regulated in the same way as a payday loan?

Generally not. Because it advances wages already earned rather than lending against future income, most schemes fall outside consumer credit regulation entirely.

Do providers have to check I can afford the fee before letting me draw down pay?

No. Unlike a regulated lender, most salary advance providers are under no legal obligation to run an affordability check.

Will using a salary advance scheme show up on my credit file?

Not typically. Credit reference agencies generally do not record this kind of usage, which means it stays invisible to other lenders assessing your finances.

Why does the FCA care about repeat use specifically?

Repeated drawdowns within the same pay period are the pattern the FCA associates with underlying financial difficulty, similar to repeat use of an unarranged overdraft or short-term credit.

The bottom line

Earned wage access and employer salary advance schemes generally sit outside FCA consumer credit regulation because they advance pay already earned, which means no legal affordability check, no credit file record, and fees that can equate to a high effective interest rate if used repeatedly. The FCA has set out its concerns and encouraged voluntary best practice rather than full regulation so far, but continues to monitor the sector closely. This is general information, not financial advice on a specific employer scheme.

Sources

• FCA, “FCA sets out views on Employer Salary Advance Schemes”

Splitting an insurance premium into monthly payments feels like a billing option, but in the United Kingdom it is usually a separate, regulated credit agreement layered on top of the insurance policy itself. Understanding that distinction matters because premium finance is assessed against the same fair-value and affordability standards as other consumer credit, and the regulator has recently published a detailed study of how well it is working.

What premium finance actually is

When an insurance customer chooses to pay monthly rather than as a single annual sum, the insurer or a linked finance provider is typically extending short-term credit to cover the premium, which the customer then repays in instalments, often with interest built into the monthly cost. This is a widely used arrangement: premium finance was used for around 48% of UK motor and home insurance policies in 2023, covering roughly 23 million policies, which makes it one of the most common consumer credit products in the country even though it is rarely thought of that way.

Why the FCA looked at it closely

The FCA launched a market study into premium finance for home and motor insurance because of concerns that the product was not always priced fairly relative to the credit risk involved, and that competition between providers might not be working effectively to keep prices down. The regulator published an update paper in July 2025 setting out its initial findings, before publishing its final report on 3 February 2026.

What the final report found

The February 2026 final report found that the cost of paying for insurance monthly has fallen significantly since the FCA’s Consumer Duty came into force in 2023, which requires firms to ensure customers receive fair value and good outcomes rather than simply the minimum legally required disclosure. The FCA’s analysis linked this to Consumer Duty supervision specifically: average APRs on premium finance fell by around 4.1% since 2022, rising to as much as 8% where the FCA directly challenged individual firms, together saving consumers an estimated £157 million a year. The report also concluded that both interest-bearing pricing and 0% APR structures can represent fair value, since providers incur broadly similar underlying costs under either model.

What the FCA decided not to do

Despite the concerns that prompted the study, the FCA ruled out blunter interventions such as an interest rate cap on premium finance or a ban on commission paid to brokers and insurers who arrange it, concluding that such measures would risk reducing access to monthly-pay insurance or pushing up premiums for other customers. No new formal rules were introduced as a result of the study. Instead, the FCA said it would continue to address poor outcomes directly through its existing supervisory tools, ongoing market monitoring using regulatory data, and direct engagement with firms whose pricing stands out as an outlier, relying on Consumer Duty as the main lever rather than new regulation specific to premium finance.

What this means when choosing to pay monthly

Because premium finance is a credit agreement, the true cost of paying monthly should be compared using the APR the provider is required to disclose, not just the difference between the monthly total and the annual lump-sum price, since that comparison captures the actual cost of the credit rather than just the cash-flow convenience. Under Consumer Duty, a firm has to be able to show its pricing represents fair value, which gives a customer a stronger basis to query or complain about a premium finance APR that looks out of line with the rest of the market.

FAQs

Is paying for insurance monthly the same as a discount for paying annually?

No. Paying monthly is usually a separate regulated credit agreement, with its own APR, rather than a simple pro-rata split of the annual premium.

Did the FCA cap interest rates on premium finance?

No. The FCA specifically ruled out a price cap or a ban on commission, concluding these could reduce access or raise costs elsewhere, and relied instead on Consumer Duty supervision.

Is 0% premium finance automatically better value than an interest-bearing plan?

Not necessarily. The FCA found that both pricing models can represent fair value, since the provider’s underlying costs are broadly similar either way; the individual APR and total cost still need comparing.

When was the FCA’s final report on premium finance published?

3 February 2026.

The bottom line

Premium finance is a regulated credit product used on nearly half of UK motor and home insurance policies, and the FCA’s February 2026 market study found that Consumer Duty supervision, rather than new rules, had already pushed average APRs down and saved consumers an estimated £157 million a year. No interest rate cap or commission ban was introduced. This is general information, not financial advice on a specific insurance or credit product.

Sources

• FCA, “MS24/2 Premium Finance Market Study”

Before 2020, an unarranged overdraft could be one of the most expensive ways to borrow in the United Kingdom, often more expensive than a payday loan, but priced in a way that made real comparison almost impossible. The Financial Conduct Authority rewrote the rules for how banks and building societies can charge for overdrafts, and the reforms are still the reason overdraft pricing looks the way it does today.

What the reforms actually banned

The FCA’s overdraft rules, confirmed in 2019 and mostly in force from 6 April 2020, banned fixed fees for using an overdraft, meaning firms can no longer charge a flat daily or monthly amount simply for having an overdraft facility or for dipping into it. Alongside that, the FCA banned charging a higher price for an unarranged overdraft, one used without the account holder’s prior agreement, than for an arranged overdraft on the same account. Before the reforms, unarranged borrowing was routinely priced far above arranged borrowing, which is part of why unarranged overdraft charges had become so concentrated: the FCA found that more than half of banks’ unarranged overdraft fee revenue came from just 1.5% of customers.

The single interest rate requirement

In place of the old mix of fees, firms are now required to price overdrafts using a simple annual interest rate, applied consistently whether the borrowing is arranged or unarranged. That single-rate structure is what makes today’s overdraft pricing look more like a standard loan rate than the layered daily-fee system it replaced, and it removes the incentive for a bank to profit specifically from unplanned, unarranged borrowing.

The advertising requirement

Firms must also advertise their arranged overdraft price using an APR, the same headline figure used to compare credit cards, personal loans and other forms of borrowing. Before this requirement, overdraft costs were disclosed in ways that made genuine like-for-like comparison difficult, since one bank’s daily fee structure could not easily be set against another’s. Requiring an APR figure puts an overdraft on the same footing, at least for comparison purposes, as other regulated credit products.

Repeat use and refused payments

Separately from the pricing rules, related measures targeting repeat use of overdrafts and the handling of refused payments took effect from 18 December 2019, ahead of the main pricing changes. These addressed the pattern of customers relying on an overdraft, particularly an unarranged one, on a recurring basis, which the FCA treated as a sign of potential financial difficulty that firms needed to identify and respond to.

The overall effect on cost

The practical effect the FCA reported was a sharp fall in the cost of unarranged borrowing: the typical cost of borrowing £100 through an unarranged overdraft fell from around £5 a day under the old fee structures to less than 20p a day under the new single-rate system. The FCA’s own analysis found that all users of unarranged overdrafts would be better off or see no change, while the effect on arranged overdraft users was more mixed, since some previously very cheap arranged overdrafts became relatively more expensive once cross-subsidy from unarranged fees disappeared; even so, the regulator expected around seven in ten overdraft users overall to be better off or see no change.

Why this matters when comparing borrowing options

An overdraft is not a cash advance product and is not regulated in exactly the same way as short-term credit, but the reforms are directly relevant to anyone weighing up an overdraft against a short-term loan, since the post-2020 single APR figure is now a genuinely comparable number. A cash advance’s total cost, including any fees, should be set against a bank’s advertised arranged overdraft APR before deciding which is cheaper for a particular amount and repayment period, rather than assuming an overdraft is automatically the cheaper option because it is attached to an existing current account.

FAQs

Can a bank still charge more for an unarranged overdraft than an arranged one?

No. The reforms specifically banned charging a higher price for unarranged borrowing than for arranged borrowing on the same account.

Are daily overdraft fees gone completely?

Fixed fees for having or using an overdraft were banned; pricing must now be a simple annual interest rate rather than a flat daily or monthly charge.

When did these changes take effect?

The core pricing reforms took effect on 6 April 2020, with related repeat-use and refused-payment measures starting earlier, on 18 December 2019.

Does the APR requirement make overdrafts directly comparable to loans?

It makes the headline rate comparable to other APR-quoted credit products, though an overdraft’s flexible, revolving structure is still different in practice from a fixed-term loan.

The bottom line

Since 6 April 2020, UK overdraft pricing has had to use a single advertised annual interest rate, with fixed daily and monthly fees banned and unarranged borrowing no longer allowed to cost more than arranged borrowing on the same account. The reforms cut the typical cost of unarranged borrowing sharply and gave borrowers a genuinely comparable APR figure to weigh against other forms of credit. This is general information, not financial advice on a specific overdraft or loan.

Sources

• FCA, “FCA confirms biggest shake-up of the overdraft market for a generation”

A lender, including a cash advance provider, can sell or transfer the right to collect a debt to another company, often a specialist debt purchaser, rather than pursuing the debt itself. This is called an assignment of the debt, and it is a common part of how the consumer credit industry manages debt that has fallen into arrears. The process is governed by ordinary property law, not by rules unique to consumer credit.

The legal basis for assignment

Section 136 of the Law of Property Act 1925 sets out the requirements for what it describes as a legal assignment of a debt or other legal thing in action. The assignment must be made in writing, signed by the party transferring the debt, and it must not simply be a charge over the debt. Critically, the person or company owed the debt originally must give express written notice of the assignment to the debtor. The assignment only takes effect, as a legal assignment transferring the right to sue for the debt in the new owner’s own name, from the date that notice is given, not from an earlier date such as when the sale itself was agreed between the two companies.

What the notice must achieve

Once proper written notice has been given, the new owner of the debt receives the legal right to the debt, the remedies for enforcing it, and the power to give a valid discharge for it without needing the original lender to be involved further. This is why a genuine assignment is normally accompanied by a formal notice confirming the sale and identifying who now owns the debt; a debtor who has not received such notice is entitled to query whether a company chasing the debt is actually entitled to do so on this basis.

What does not change when a debt is sold

An assignment transfers the right to the debt as it already exists; it does not create a new debt or a new agreement, and it does not change the amount owed, the interest that had already been agreed, or defences and complaints the borrower already had against the original lender. Section 136 also protects the debtor specifically where there is a dispute about who the assignment is actually owed to: the debtor can require the rival claimants to resolve the dispute between themselves through the court, or pay the disputed amount into court, rather than risk paying the wrong party.

Consumer credit protection continues to apply

Where the underlying agreement was a regulated consumer credit agreement, such as a cash advance, the new owner of the debt, if it is itself an FCA-authorised firm or is using an authorised firm to collect, remains subject to the same consumer credit conduct rules covered elsewhere on this site, including the FCA’s rules on how lenders and debt collectors may contact a borrower and how arrears must be handled. Selling the debt to a different company is not a way for the original terms or the borrower’s regulatory protections to be avoided.

Checking a debt sale is genuine

Because assignment depends on a specific written notice, a borrower contacted by an unfamiliar company claiming to have bought a debt can reasonably ask for confirmation of the assignment, including who the original creditor was, the account or reference number, and the amount said to be owed, before making any payment. This is a straightforward way to distinguish a genuine assignment, which should be capable of being evidenced, from an attempt to collect a debt that does not exist, is already settled, or belongs to someone else entirely.

What to do if contacted about a sold debt

Confirming the identity of the new owner, checking the amount claimed against the borrower’s own records of the original agreement, and querying anything that does not match, is the sensible first step before agreeing a new repayment arrangement with an unfamiliar company. Where a debt is genuinely owed, the underlying obligation to repay it does not disappear because it has changed hands, but neither does it become larger, or subject to different consumer protections, purely because of the sale.

FAQs

Does a debt seller have to tell the borrower it has sold the debt?

Yes. Section 136 of the Law of Property Act 1925 requires express written notice of the assignment before it takes effect as a legal assignment.

Does selling a debt change the amount owed?

No. Assignment transfers the existing debt on its existing terms; it does not create a new debt or change what was already owed.

Do the original consumer credit protections still apply after a debt is sold?

Yes, where the underlying agreement was a regulated consumer credit agreement, the applicable conduct rules continue to apply to the new owner or its collectors.

What if two companies both claim to own the same debt?

Section 136 lets the debtor require the rival claimants to resolve the dispute through the court, or pay the disputed sum into court, rather than risk paying the wrong company.

Bottom line

Selling a debt to a collection company is a legal assignment governed by section 136 of the Law of Property Act 1925, which requires express written notice to the borrower before it takes effect, and which transfers the existing debt on its existing terms without creating a new one or removing existing consumer credit protections. This article is general information, not legal advice on a specific debt; free debt advice services can check whether a specific assignment and the sums claimed are correct.

Sources

• legislation.gov.uk, “Law of Property Act 1925, section 136: Legal assignments of things in action”

A debt consolidation loan replaces several existing debts, which might include a cash advance, credit cards or other borrowing, with a single new loan, usually to simplify repayments or reduce the overall interest rate. Whether it is a good option depends heavily on whether the new loan is secured or unsecured, and on the same affordability assessment that applies to any other regulated credit agreement.

The affordability check that still applies

A debt consolidation loan is, for regulatory purposes, a regulated credit agreement like any other, so the FCA’s creditworthiness rules apply before a firm can lend. CONC 5.2A requires a firm to undertake a reasonable assessment of a customer’s creditworthiness before entering into a regulated credit agreement, considering both the risk that the customer will not make repayments and the risk that repayment will cause the customer undue difficulty, described in the rule as affordability risk. The firm must assess whether the customer can repay in a sustainable manner, without having to borrow further, without missing other payments, and without the repayments having a significant adverse effect on the customer’s financial situation.

What the assessment is based on

CONC 5.2A requires this assessment to be based on sufficient information, which can include the customer’s income, verified where appropriate by evidence, and non-discretionary expenditure such as essential living costs and existing priority debts, along with any reasonably foreseeable reduction in income or increase in expenditure over the term of the agreement. Because a debt consolidation loan is specifically being taken out to deal with existing debt, a lender assessing affordability should, in principle, already be looking closely at exactly the kind of existing commitments the loan is meant to replace, not just at income in isolation.

Security cannot be used to justify the lending

One safeguard in the FCA’s rules is particularly relevant to debt consolidation. CONC 5.2A states that a firm must not take into account the existence of, or an intention to provide, a guarantee, indemnity or other form of security when assessing the affordability risk for the customer. In other words, a lender cannot approve a loan it would otherwise consider unaffordable simply because the loan is secured against the borrower’s home; the underlying ability to repay still has to stand on its own.

Unsecured consolidation vs a secured homeowner loan

A debt consolidation loan can be unsecured, in which case it is regulated in broadly the same way as a cash advance under CONC, or it can be secured against the borrower’s home as a second charge loan, in which case it falls instead under MCOB, the FCA’s mortgage conduct rules, as covered elsewhere on this site. Converting unsecured debts, where the ultimate consequence of non-payment does not include losing a home, into a single loan secured against the home changes the nature of the risk considerably, even where the monthly repayment looks lower. This is the central trade-off anyone considering consolidating debt through a secured loan needs to weigh, separately from the headline interest rate.

Why the total cost matters more than the monthly figure

A debt consolidation loan can lower the monthly outgoing simply by extending the repayment term, even where the interest rate is similar to or only slightly better than the debts being replaced. A longer term can mean paying more in total interest over the life of the loan than would have been paid on the original debts, despite the smaller monthly amount. Because the FCA’s affordability assessment looks at whether repayments are sustainable rather than at whether the total cost is minimised, a borrower comparing consolidation options needs to check the total repayable figure specifically, not rely on the lender’s assessment alone to identify the cheaper option.

Before applying

Listing every existing debt, its balance, interest rate and remaining term, makes it possible to compare a consolidation offer properly against simply continuing with the existing debts, or against other options such as those covered elsewhere on this site, including debt management plans. A new consolidation loan also generally involves a fresh credit search, and an existing debt that already has good terms, such as a low promotional rate that has not yet ended, is not automatically improved by rolling it into a new loan.

FAQs

Does a lender have to check affordability before approving a consolidation loan?

Yes. CONC 5.2A requires a reasonable creditworthiness assessment, covering both credit risk and affordability risk, before any regulated credit agreement, including a consolidation loan, is entered into.

Can a lender approve a loan it would otherwise see as unaffordable just because it is secured?

No. CONC 5.2A specifically states that a firm must not take a guarantee, indemnity or other security into account when assessing affordability risk.

Is a debt consolidation loan always unsecured?

No. It can be unsecured, regulated under CONC, or secured against the home as a second charge loan, regulated under MCOB, and the two carry very different risks if repayments are missed.

Does a lower monthly payment always mean a consolidation loan is cheaper overall?

Not necessarily. A longer term can reduce the monthly payment while increasing the total interest paid over the life of the loan.

Bottom line

A debt consolidation loan is subject to the same FCA affordability assessment as any other regulated credit agreement, and a lender is not allowed to rely on security alone to justify lending that would otherwise look unaffordable. The more significant choice is usually between an unsecured consolidation loan and one secured against the home, since the second converts unsecured risk into a risk that can ultimately affect where the borrower lives. This article is general information, not financial advice on a specific loan; a free debt adviser can help compare consolidation against other options for a specific set of debts.

Sources

• FCA Handbook, “CONC 5.2A: Creditworthiness assessment”
• FCA Handbook, “CONC 1.2: Who? What? Where?”

Buy Now Pay Later, generally interest-free credit repayable in instalments over a short period, sat outside FCA regulation for years, unlike a regulated cash advance or personal loan. That changed on 15 July 2026, when the FCA began regulating this type of borrowing directly under a new regulated activity.

What the FCA now regulates

From 15 July 2026, the FCA regulates deferred payment credit, referred to as DPC: interest-free Buy Now Pay Later agreements repayable in 12 or fewer instalments over a term of 12 months or less. This is the product most people mean when they refer to Buy Now Pay Later at online checkouts. Agreements entered into before 15 July 2026 are not brought within these new protections retrospectively; the rules apply to DPC agreements made from that date onward.

Affordability checks are now required

Firms offering DPC must now check whether a borrower can afford to repay before entering into the agreement, bringing this type of credit in line with the affordability assessment requirements that already applied to other regulated consumer credit, including a cash advance, covered elsewhere on this site. Before regulation, a BNPL provider was not required by the FCA to carry out this kind of check, which was one of the main gaps campaigners and the FCA itself had identified.

Clearer information before borrowing

Lenders must now give borrowers pre-agreement information covering the amount being borrowed, the repayment schedule and amounts, any late fees, and the rights and protections the borrower has under the agreement. This mirrors the kind of pre-contract information already required for other regulated credit agreements, giving a BNPL user the same kind of documentation to check before committing as they would get with a regulated loan.

What happens if a payment is missed

Where a borrower misses a payment, firms are now required to contact them to explain what has happened and what it means for the agreement, rather than simply applying a late fee or escalating silently. Firms must also provide support to borrowers who are struggling to keep up with repayments, reflecting the same kind of forbearance expectations that apply to other regulated lenders when a borrower falls into arrears.

Section 75-style protection

One of the most significant practical changes is that borrowers using DPC now have protection similar to Section 75 of the Consumer Credit Act 1974, meaning that if something goes wrong with the goods or services bought using Buy Now Pay Later, the borrower may be able to claim a refund through the credit provider, not only through the retailer. This protection did not exist for BNPL purchases before regulation took effect, leaving a borrower reliant solely on the retailer if goods were faulty or a company went out of business.

Access to the Financial Ombudsman Service

Borrowers with an unresolved complaint about a regulated DPC agreement can now take that complaint to the Financial Ombudsman Service, the same free, independent complaints route already available for other regulated credit, including a cash advance, and covered elsewhere on this site. Before regulation, a BNPL user had no equivalent formal right to escalate an unresolved dispute to the Ombudsman.

What did not change

The new rules apply specifically to DPC agreements entered into from 15 July 2026. They do not retrospectively apply the same protections to a Buy Now Pay Later agreement taken out before that date, and BNPL products structured differently, for example longer-term interest-bearing credit, may already have been regulated under existing consumer credit rules before this change, or may fall under different provisions depending on their structure. A borrower unsure whether a specific BNPL agreement is covered should check the terms provided at the point of borrowing, which regulated firms are now required to set out clearly under the new rules.

FAQs

When did BNPL become FCA-regulated?

The FCA began regulating deferred payment credit, interest-free BNPL repayable in 12 or fewer instalments over up to 12 months, from 15 July 2026.

Do the new rules apply to a BNPL agreement taken out before July 2026?

No. The protections apply to deferred payment credit agreements entered into from 15 July 2026 onward.

Can a BNPL user now complain to the Financial Ombudsman Service?

Yes, for a regulated deferred payment credit agreement, borrowers can take an unresolved complaint to the Financial Ombudsman Service.

Do BNPL borrowers now get protection if goods are faulty?

Borrowers using regulated deferred payment credit now have protection similar to Section 75 of the Consumer Credit Act 1974, allowing a claim against the credit provider in some circumstances.

Bottom line

Since 15 July 2026, interest-free Buy Now Pay Later credit repayable over 12 months or less has been FCA-regulated as deferred payment credit, bringing affordability checks, clearer pre-agreement information, arrears support, Section 75-style protection and Financial Ombudsman Service access that did not previously apply to this type of borrowing. This article is general information, not financial advice; a specific agreement’s terms should be checked to confirm whether it falls within the new regulated category.

Sources

• Financial Conduct Authority, “Buy Now Pay Later”

A cash advance is unsecured borrowing, regulated under the FCA’s Consumer Credit Sourcebook, known as CONC. A secured homeowner loan, sometimes called a second charge mortgage, is a different product regulated under a different FCA rulebook, the Mortgages and Home Finance: Conduct of Business sourcebook, known as MCOB. Understanding which rulebook applies matters because the two set different requirements for lenders and give borrowers different protections.

What makes a loan “secured” on a home

A secured homeowner loan is secured by a legal charge over the borrower’s property, ranking behind the first mortgage the borrower already has, which is why it is described as a second charge. If repayments are not kept up, the lender’s ultimate remedy is to seek repossession of the property through the courts, in the same way a first mortgage lender can. A cash advance carries no such claim over any specific asset; a lender’s remedy for non-payment is the general debt recovery and default process covered elsewhere on this site, not repossession of a home.

The 2016 change that moved second charge lending into MCOB

Second charge lending was not always regulated as a mortgage product. The FCA Handbook confirms that, following implementation of the Mortgage Credit Directive, MCOB has applied to second charge regulated mortgage contracts, including those entered into before the change took effect, from 21 March 2016. Before that date, this type of lending sat under consumer credit regulation instead. CONC itself confirms the current boundary, stating that CONC does not apply to credit agreements secured on land, with limited exceptions, because agreements secured by a second or subsequent charge on a customer’s home are regulated under MCOB from 21 March 2016 rather than under CONC.

What MCOB requires that differs from CONC

MCOB reflects the fact that a home, not just a credit file, is at risk. It sets requirements around advising on and selling mortgage-related products, disclosure of the overall cost and risks before the borrower commits, and how a lender must deal with a borrower who falls into arrears, including exploring ways of managing the arrears before repossession is pursued. CONC, covering unsecured lending such as a cash advance, has its own arrears and forbearance requirements too, but the underlying product and the ultimate consequence of serious default are different: a home is not at stake with an unsecured cash advance in the way it is with a second charge loan.

Why the distinction matters when comparing borrowing options

Some borrowers consider a secured homeowner loan specifically to consolidate other debts, including a cash advance or other short-term borrowing, often because the interest rate on a secured loan can look lower than unsecured rates. Because the underlying legal position is different, that lower rate has to be weighed against the fact that a secured loan puts the home itself at risk if payments are not kept up, where an unsecured cash advance does not. This trade-off is a central point in the debt consolidation guidance covered elsewhere on this site.

Checking which type of loan is being offered

A lender offering a second charge secured loan must be authorised for the relevant regulated mortgage activity, not just for consumer credit activity, and this can be checked on the Financial Services Register in the same way a cash advance lender’s authorisation can be checked, as covered elsewhere on this site. Because the rulebook and the risk are different, a borrower comparing offers should establish clearly, before signing anything, whether a loan being offered is secured against the home or is unsecured, rather than assuming from the interest rate or marketing alone.

What stays the same either way

Whichever rulebook applies, the FCA’s Consumer Duty, requiring firms to act to deliver good outcomes for retail customers, applies across both secured and unsecured regulated lending. Access to the Financial Ombudsman Service if a complaint cannot be resolved with the lender is also available for both types of regulated borrowing, though the underlying product terms, arrears process and ultimate consequences of default remain distinct between the two.

FAQs

Is a secured homeowner loan regulated in the same way as a cash advance?

No. A secured homeowner loan is regulated under MCOB as a mortgage-related product, while a cash advance is regulated under CONC as consumer credit.

When did second charge loans move to mortgage regulation?

The FCA Handbook confirms MCOB has applied to second charge regulated mortgage contracts, including those already in existence, since 21 March 2016.

What is the main practical risk difference?

A secured homeowner loan puts the home at risk of repossession if payments are not kept up; an unsecured cash advance does not carry that specific risk, though it still affects the credit file and can lead to court action for the debt.

Do both types of loan need FCA authorisation?

Yes, but for different regulated activities: consumer credit lending for a cash advance, and mortgage-related regulated activity for a second charge secured loan.

Bottom line

A secured homeowner loan and a cash advance may both appear as ways to borrow money, but they sit under different FCA rulebooks, MCOB and CONC respectively, because one is secured against a home and the other is not. That difference in regulation reflects a real difference in risk: a home can ultimately be repossessed to recover a second charge loan, which is not a consequence of an unsecured cash advance. This article is general information, not financial advice on a specific loan; a mortgage adviser or debt adviser can help compare options for a specific situation.

Sources

• FCA Handbook, “MCOB 1.2: Application”
• FCA Handbook, “CONC 1.2: Who? What? Where?”