If you have seen the abbreviation "HCSTC" in a news article or financial report and wondered what it means, you are not alone. It is a technical label used by the UK's financial regulator, and it has real consequences for how certain loans are priced and what protections you have.
This article explains what HCSTC is, which products it covers, and how it compares to other forms of borrowing such as credit cards and buy-now pay-later.
This article gives general information about a regulatory category. It is not financial advice and does not tell you which product to choose or whether any particular loan is right for you.
What is high-cost short-term credit?
HCSTC stands for high-cost short-term credit. In plain English, it is the Financial Conduct Authority's (FCA) name for a group of expensive, short-duration loans that need tighter rules than ordinary credit.
The FCA defines HCSTC as a loan that meets all three of these conditions at once:
- The APR is 100% or more.
- The loan is due to be repaid within 12 months (or has no fixed term but is substantially repaid within 12 months in practice).
- The borrower is an individual, not a business.
Payday loans are the most common example. A payday loan typically has a very high APR and is meant to be repaid on the borrower's next payday, so it meets all three criteria.
Why does the HCSTC label matter?
The FCA created the HCSTC category because these products carry a higher risk of pushing borrowers into difficulty. Labelling them separately allows the regulator to apply stricter rules to this group alone, without those rules affecting mortgages or credit cards.
The most significant rule is the price cap, introduced in January 2015. The cap works in three parts:
- Daily interest cap: lenders can charge no more than 0.8% per day on the outstanding balance.
- Default fee cap: if you miss a payment, lenders can charge no more than £15 as a one-off default fee.
- Total cost cap: you will never owe more in total interest, fees and charges than 100% of the original loan amount. Borrow £200, and the most you can ever be asked to repay in charges is £200 on top, making £400 in total.
The total cost cap is the most important protection. It means the debt cannot spiral indefinitely.
What products are classified as HCSTC?
Most payday loans and some short-term instalment loans fall within the HCSTC category. The common thread is a high APR combined with a short repayment window.
Products that are not HCSTC include:
- Credit cards, these are regulated separately under FCA consumer credit rules. Even a credit card with a high interest rate does not meet the HCSTC definition, partly because there is no fixed short repayment term.
- Overdrafts, bank overdrafts have their own FCA rules introduced in 2020, which brought in a simpler single interest rate. They are not classified as HCSTC.
- Buy-now pay-later (BNPL), most BNPL agreements have sat largely outside FCA credit regulation, which means they are not HCSTC. The UK government has been working to bring BNPL products under fuller regulation, but that process is still ongoing.
- Standard personal loans, a personal loan from a bank or credit union with a moderate APR and a repayment term of one to five years is not HCSTC. The high-APR threshold means most mainstream personal loans fall well below the cut-off.
How does the APR threshold work in practice?
The 100% APR threshold can be confusing, because a very short loan can show an enormous APR even when the actual charge is modest in cash terms.
A simple way to think about it: APR translates the cost of borrowing into a yearly figure. A loan that costs £24 to borrow £200 for one month works out at an APR of around 1,500%, because if you borrowed at that rate for a full year the cost would be much higher. The APR is not meant to suggest anyone would actually borrow for that long, it is a standardised comparison tool.
The important bit is that a lender with products above 100% APR must follow the HCSTC rules, including the price cap. This protects borrowers from the most extreme costs.
What checks must HCSTC lenders carry out?
Lenders offering HCSTC must meet stricter affordability and creditworthiness requirements than most other credit providers. The FCA's Consumer Credit sourcebook (CONC) requires them to assess whether the borrower can afford to repay without difficulty.
Lenders must also:
- Explain clearly how much the loan will cost in total, including all charges.
- Not roll over a loan more than twice. Rolling over means extending the term rather than repaying, a practice that caused significant harm before the cap was introduced.
- Refer borrowers to a free debt advice service if they are showing signs of financial difficulty.
These rules came from the FCA's extensive review of the payday lending market in the years leading up to 2015, which found widespread harm from repeated rollovers and poor affordability checks.
How HCSTC compares to credit cards and BNPL
It can help to see the three categories side by side.
| HCSTC (e.g. payday loans) | Credit cards | Buy-now pay-later | |
|---|---|---|---|
| FCA regulated? | Yes | Yes | Mostly not yet (regulation pending) |
| Price cap applies? | Yes | No | No |
| Typical APR | Often 300% to 1,500%+ | 20% to 60% | 0% (interest-free periods) or high if you miss payments |
| Repayment term | Days to 12 months | Ongoing revolving credit | Usually 4 to 6 weeks or monthly instalments |
| Rollover limit | Maximum 2 rollovers | No limit | Varies by provider |
| Free debt help referral required? | Yes (if in difficulty) | No specific rule | Not currently regulated |
The key difference is that only HCSTC has a statutory price cap. Credit cards and most BNPL products do not have the same hard ceiling on what you could owe.
What to check before using a high-cost short-term loan
The HCSTC rules give you important protections, but they do not make these products low-risk. A few things worth considering before using one:
- Check whether the lender is FCA-authorised. You can search the FCA Register at register.fca.org.uk. An unauthorised lender does not have to follow the price cap.
- Work out the total repayable amount before borrowing. The lender is required to show you this figure. Check it against your budget.
- Consider whether a credit union loan or an authorised overdraft might be cheaper. Credit unions often offer small short-term loans at much lower rates to their members.
- Look at your eligibility before applying. Some lenders allow a soft search that does not affect your credit file, which can be a useful first step.
Frequently asked questions
What does HCSTC stand for? HCSTC stands for high-cost short-term credit. It is a regulatory category defined by the Financial Conduct Authority (FCA) covering expensive short-duration loans, most commonly payday loans and similar products.
Is a payday loan always HCSTC? Most payday loans qualify as HCSTC because they meet the FCA's criteria: an APR of 100% or more, a repayment term of 12 months or less, and the borrower is not a company. There are narrow exceptions, but a typical payday loan falls into this category.
Does the price cap mean I can never be charged more than double what I borrow? The FCA's total cost cap means you will never be required to repay more than double the original loan amount in interest and fees combined. For example, if you borrow £200, the most you could ever owe is £400 in total.
Are credit cards HCSTC? No. Credit cards are regulated separately by the FCA and do not fall within the HCSTC category. The HCSTC rules and price cap do not apply to credit cards, even when their interest rates are high.
Is buy-now pay-later HCSTC? Most buy-now pay-later agreements currently fall outside FCA credit regulation, so they are not classified as HCSTC. This may change as the UK government brings BNPL products under fuller regulation.
Where can I find the official FCA rules on HCSTC? The FCA publishes its HCSTC rules and guidance in its Consumer Credit sourcebook (CONC), available on the FCA website at fca.org.uk. The price cap rules are set out in CONC 5A.
Sources and further reading
The information in this article draws on the FCA's published rules and guidance, including its Consumer Credit sourcebook (CONC) and its policy statements on the HCSTC price cap regime.
Related guides
- Payday loans guide, our full guide to how payday loans work, who offers them, and what to watch out for.
- Buy-now pay-later guide, how BNPL works and the risks to be aware of.
- What does HCSTC stand for?
HCSTC stands for high-cost short-term credit. It is a regulatory category defined by the Financial Conduct Authority (FCA) covering expensive short-duration loans, most commonly payday loans and similar products.
- Is a payday loan always HCSTC?
Most payday loans qualify as HCSTC because they meet the FCA's criteria: an APR of 100% or more, a repayment term of 12 months or less, and the borrower is not a company. There are narrow exceptions, but a typical payday loan falls into this category.
- Does the price cap mean I can never be charged more than double what I borrow?
The FCA's total cost cap means you will never be required to repay more than double the original loan amount in interest and fees combined. For example, if you borrow £200, the most you could ever owe is £400 in total.
- Are credit cards HCSTC?
No. Credit cards are regulated separately by the FCA and do not fall within the HCSTC category. The HCSTC rules and price cap do not apply to credit cards, even when their interest rates are high.
- Is buy-now pay-later HCSTC?
Most buy-now pay-later agreements currently fall outside FCA credit regulation, so they are not classified as HCSTC. This may change as the UK government brings BNPL products under fuller regulation.
- Where can I find the official FCA rules on HCSTC?
The FCA publishes its HCSTC rules and guidance in its Consumer Credit sourcebook (CONC), available on the FCA website at fca.org.uk. The price cap rules are set out in CONC 5A.