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Payday loans: perfect for ‘plane tickets to the Canary Islands'
Unbelievably, Wonga is telling students that their expensive payday loans are a great way to help budget at university.
I’ve never liked payday loan companies.
They charge astronomical interest rates, prey on the financially vulnerable and encourage irresponsible borrowing.
However, just when I thought my opinion of payday loans couldn’t sink any lower, a Wonga marketing campaign targeting university students crossed my path.
You have to hand it to them; young, impressionable students who have just moved out of home and are learning to budget for the first time will likely prove a most lucrative market…but really Wonga? Really?
Wonga informs its young audience that while a student loan is fine to help pay for university and living costs, they also encourage you to live beyond your means – ‘it’s all too easy to fritter away the money once you have it’.
Wonga’s solution to this problem therefore is to suggest students take a student loan to cover the essentials and then use its own short-term loans to fund emergencies and any unexpected expenses – like ‘plane tickets to the Canary Islands’….
‘In the time it takes to check your email and Facebook, you can have your loan request approved and the money transferred securely into your bank account. You won’t miss out on that cheap plane ticket offer and you can start saving money for a fantastic holiday with your mates’.
Yet, Wonga has a representative APR of 4,214%. This means that if you borrow £400 over 30 days you’re looking at over £125 in interest and fees.
If you then can't afford to repay your debt within the specified time you will be charged a further 1% interest a day up to a maximum of 60 days.
In comparison, the interest rate on a student loan is inflation, as measured by the retail price index (RPI), plus 3%. This rate will then be reduced once you’ve graduated if you’re earning under £41,000.
You also don’t have to begin making payments until you’re earning over £21,000 – not the £15,000 Wonga claims.
Furthermore, you can choose to repay your debt earlier if you want to – and though the government has said it may charge a penalty for doing so it’s unlikely to be in the realms of 4,000 APRs.
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