By Kelly Alford
Greedy payday loan companies have come under fire for targeting financially vulnerable Kingston students, a River investigation has found.
The undercover probe found companies willing to lend money at sky high rates of interest to students with little way of paying back the cash.
In one shocking example, a short term loan company offered credit that required a repayment of over half a student’s monthly income.
Companies including Wonga and Cash Genie have been criticised recently for targeting students by offering quick cash to fund unexpected emergencies.
Wonga had a dedicated student section which warned students that a traditional student loan could leave them with “a nasty debt hangover”, and offered an alternative option with a staggering 2,829 per cent APR.
During our investigation a reporter for The River, on a monthly salary of just £750, had a £300 loan over a 30 day period approved. The loan required a repayment of £397.19, which is 52.9 per cent of her monthly income.
Wonga gives students ill advice
“It is highly irresponsible of any company to suggest to students that high-cost, short-term loans be a part of their everyday financial planning,” said National Union of Students vice president Pete Mercer.
“Students should think long and hard before choosing payday loans over any other form of borrowing, including Government-backed student loans.”
The Wonga site advised students that taking out a lower Government loan and topping up with a payday loan was the best way to budget for university.
One advert advised students to “only take out the student loan that you think you’ll need, and if you need to borrow a small sum for up to a month to cover an emergency, you could top up your funds with a Wonga loan”.
Martin Lewis blasted the advert as “morally offensive” on Twitter and the student section was later removed by Wonga.
“The idea you should get a Wonga loan rather than a student loan is outrageous,” said Lewis. “Student loans only need repaying when you earn over £15,000 and the repayment is proportionate to income. They don’t go on your credit file, there are no debt collectors.”
Cash Genie criticised for encouraging students to use high interest loans
Wonga is just one of many payday loan companies to start targeting students. Cash Genie also removed certain adverts from their website after they were criticised for encouraging students to use their high interest loans to fund social events.
The advert stated: “Our easy loan service can be used as a short-term benefit to pay for your desires (alcohol, gigs, going out, new clothes, presents for others).”
Steve Perry, author of When Pay Day Loans Go Wrong, branded Cash Genie irresponsible and said that payday loans could only work if the full sum of money plus interest could be repaid on time, which is unlikely for students.
“We are supposed to be looking at a responsible lender here,” said Perry, who spiralled into debt after taking out over 60 payday loans in one year.
“Stating that the essentials of a student loan is to pay for partying is simply unacceptable.”
Government funding for university is specifically tailored for students and the interest rate is always proportionate to the rate of inflation. Current students will not have to start repaying their loan until they are earning over £15,000 a year, which will rise to £21,000 this year when higher tuition fees are introduced.
APR rates reach the thousands
Due to the short term nature of payday loans, APR rates can reach into the thousands.
They are intended as short-term solutions and are often accepted with very limited credit checks, making it easier for the financially vulnerable to be approved.
Debt can begin to spiral if payments are missed or if more than one loan is used at a time, however many companies still offer larger sums of money to returning customers.
President of Kingston University Students’ Union, Christopher Dingle, said that the companies were run “unethically” and were “designed to snare you as a trap” with their high interest rates.
“Payday loans are a dangerous source of quick cash to play with. They [make it] very easy to get into a downward cycle that can quickly lead to a serious debt problem,” said Dingle.
Both Wonga and Cash Genie stated that their adverts were not designed to “actively target students” but were purely for search engine optimisation, a technique used to drive more traffic towards websites.
Payday loans are regulated by the Office of Fair Trading in the UK, but the Centre for Responsible Credit has called for the government to introduce tougher parameters. Some US states restrict the amount payday loan companies can lend, capping it at 25 per cent of the borrower’s monthly income.
Lenders are also compelled by their licence to share information about outstanding debts in order to prevent a borrower from obtaining multiple loans.
In addition, a code of practice adopted by some payday lenders in Canada entirely prohibits roll-over lending.
Keith Houghton, head of Student Funding for Kingston University, urged any students who are struggling with their finances to seek help from the Student Funding Service at Cooper House before borrowing from one of these companies.
“We can help them draw up a budget and then some pointers on managing money, as well as checking that they are receiving all the funding they are entitled to,” he said.
“We also deal with applications for a number of student hardship funds and more information about these is available on MyKingston.”
To read the full investigation pick up an issue of the lastest River.