Wonga.com has sparked fury after the firm started pushing payday loans as an alternative to student loans.
The payday loans provider, which likes to position itself as one of the ‘good guys’ of the murky payday sector, has launched a new section on its website targeted at students.
And the promotional text is something to behold.
"It's pretty hard not to get carried away when you're a student on a budget and have the option to borrow large amounts of money with a student loan. But the problem with student loans is that they potentially encourage you to live beyond your means."
Apparently the answer to your issues is to take out a loan with a representative APR in excess of 4,000%!
The move immediately sparked fury, with the National Union of Students accusing the firm of “predatory” tactics.
Short-term finance
Payday loans work on a simple basis. The idea is that you only borrow the cash for a very short time period, say a month. And if you then pay that loan off after a month, the interest you pay doesn’t seem that exorbitant. For example, borrow £100 from Wonga and pay it off after 30 days, and the interest and fees will come to £36.72.
And because the loans are only designed as a short-term measure, the payday loan providers argue it’s not fair to judge them based on the massive APRs.
A growing problem
That’s the marketing spiel, anyway. The trouble is, plenty of people who take out these loans don’t manage to clear the debt after a month. So the amount they owe quickly ratchets up until it becomes completely unmanageable. While the APR may be a tad misleading if you’re the sort of borrower who pays off that payday loan on time, there are plenty of borrowers for whom it is all too accurate.
Shelter has already claimed that around a million people had to turn to payday loans over the past year in order to cover their mortgage or rent, entering a “spiral of debt” in order to keep a roof over their heads.
And the Government is sufficiently concerned that it has talked of establishing a rate cap to limit the damage these loans can do.
A last resort
Payday loans can play a last-resort role in the case of an emergency. But marketing them to students is outright irresponsible and makes a mockery of that.
It’s one thing to promote the loans to people in work, who can actually expect a pay cheque at the end of the month to cover the loan. It’s quite another to target a section of society with very little in the way of an income, and are therefore even more at risk of failing to pay off the loan, spiralling ever further into debt.
It takes some serious cheek to highlight the potential long-term expense of using a large student loan, while in the process promoting a loan with a four-figure APR. Similarly, it’s unbelievable to claim that student loans encourage you to live beyond your means while simultaneously highlighting that a payday loan of up to £1,000 can be in your account within minutes!
Paying for essentials
Citizens Advice last year warned that it was becoming increasingly concerned at the way payday loans were being advertised as a means of affording clothing, nights out and festival tickets. Pushing them towards the nation’s young people, who are already facing the prospect of thousands of pounds in University fees and a horrendous job market when they do graduate is outrageous.
Here’s the sentence on the Wonga student loan page that really got my back up: “When your mates tell you about finding a deal on plane tickets to the Canary Islands, you’ve got some options.”
A jolly with the boys to the Canary Islands does not constitute an emergency. Not even close. If you don’t have the money for the plan tickets, then you clearly cannot afford to go!
I’ve no doubt that Wonga will quietly pull this section of its website, such has been the outrage it’s sparked. But the damage is already done. It’s demonstrated an extraordinary lack of morals in targeting such a financially vulnerable section of society. Why would you ever want to deal with a firm like that?
Update: Following the uproar the student loan pages caused, Wonga pulled them, saying it listened to customers and public opinion and arguing it had never actively targeted students.