Wonga backs down over student row
Payday loan company Wonga has stopped promoting short-term loans for students, following criticism from the National Union for Students (NUS).
It has removed two online articles promoting short-term loans for students and warning them against unauthorised overdraft charges.
NUS vice-president Pete Mercer called for Wonga to withdraw the articles "which contain information that appears to be inaccurate, and is aimed at financially vulnerable young people".
"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," he adds, branding the two web pages "predatory marketing".
In response, Wonga initially issued a statement claiming it doesn't "actively target students in any way". It says the two web pages, criticised by Mercer, "merely highlight the risk and high cost of unauthorised overdraft charges, plus the potential trap of long-term debt versus a short-term solution".
But following a backlash of comments and complaints on social media site Twitter, the payday loan company, which charges an average APR of 4,212% on its loans, has now taken down the content.
Wonga has replaced the articles with a message from its team explaining it has removed the previous articles "because we do not actively target students as potential customers and we wanted to clear up any confusion about that".
It concedes that the content was several years old but says it would still consider lending to a student, provided they have a regular income.
"Students should think long and hard before choosing payday loans over any form of borrowing, including government-backed student loans," warns Mercer.
"If students are struggling to make ends meet there is often other support available, and anyone worried about their finances should talk to their students' union or financial advisers at their university."
Short-term cash loans designed to be borrowed mid-way through the month to tide the borrower over until they next get paid, whereupon the loan is settled. Generally used by people with bad credit ratings and/or no access to short-term credit such as an overdraft or credit card. Like logbook loans, this type of borrowing is hugely expensive: the average APR on payday loans is well over 1,000% and in some instances can be considerably more.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.