They claim to solve people's short term and urgent cash flow problems with an equally short term and responsible solutions. But with interest rates of over 800% APR, should students ever resort to payday loans?
The catchy jingles and the happy looking borrowers have lead to millions of people in the UK taking out payday loans every year, however just 13% of customers believe that using payday loans improved their finances. With payday lenders now targeting cash-strapped students, the NUS has warned that they can be very dangerous and that they should be avoided at all costs.
Up until January 2012, Wonga had a section on their website which claimed to offer a better service for students than the traditional student loan - despite an annual interest rate of 4,214%, compared to the current student loan rate of 1.5%. The short-term money lender stated that, the problem with student loans is that they potentially encourage you to live beyond your means.
"Taking on a student loan throws you into the deep end of money management. While you generally don't have to start paying it back until after you earn £15,000, it's still debt you owe that can play a significant role in your credit history."
Wonga offered their high interest loans to students, not just to help with the cost of living but to pay for aeroplane tickets to the Canary Islands. Their website stated, "Maybe you don't have the money to pay for the whole thing now, but you will when you get your wages at the end of the week. Enter, Wonga!"
Undercover borrower
After pressure from the NUS who said the targeting of financially vulnerable students was "incredibly irresponsible," Wonga withdrew the page in question from their website. Uncertain that Wonga had changes its ethos, we asked an undercover student to find out how easy it was to borrow money from the lender.
Sarah Summersgill, a 20 year-old student at Solent University, who earns £295 a month from her part time job, agreed to apply for a payday loan. After a five minute application, Wonga agreed to lend Sarah £150, over half of her monthly income, for 15 days. If she had proceeded with the application, Sarah would have had to repay £178.51, leaving her with less that £120 from her next pay cheque.
"The application process was really easy, but there is no way I could afford to live off £120 a month so I would struggle to repay the loan. They should ask you how much your outgoings are before letting you have the money."
Wonga, like most other payday lenders will only loan money to people who have some form of job, however in December 2011 a company which lends money just to students was launched.
The same but different
Undercover borrower
After pressure from the NUS who said the targeting of financially vulnerable students was "incredibly irresponsible," Wonga withdrew the page in question from their website. Uncertain that Wonga had changes its ethos, we asked an undercover student to find out how easy it was to borrow money from the lender.
Sarah Summersgill, a 20 year-old student at Solent University, who earns £295 a month from her part time job, agreed to apply for a payday loan. After a five minute application, Wonga agreed to lend Sarah £150, over half of her monthly income, for 15 days. If she had proceeded with the application, Sarah would have had to repay £178.51, leaving her with less that £120 from her next pay cheque.
"The application process was really easy, but there is no way I could afford to live off £120 a month so I would struggle to repay the loan. They should ask you how much your outgoings are before letting you have the money."
Wonga, like most other payday lenders will only loan money to people who have some form of job, however in December 2011 a company which lends money just to students was launched.
The same but different
Smart-Pig “lets students borrow small amounts of money until their next student loan payment.” Like many of the other payday lenders Smart-Pig’s corporate style is unremittingly cheerful. Click on their website home-page and you are greeted with text which reads, “Smart Means Speedy! The fastest Pig around! Once your loan is approved we will transfer your money within two hours.” This text is accompanied by an animated pig on wheels, which appears to be travelling across the screen.
The rest of the website has a similar feel. On every page there is a different picture of an animated pig and friendly text, such as, “these Smart-Pig moments are nothing to be ashamed of – we’re here to make things easier for you.” Not too dissimilar from the ‘About Us’ section on Wonga’s which reads, “everybody has the occasional Wonga moment.”
Speaking to Impact however, cofounder of Smart-Pig, Tom Parks said that their company is different from the other short-term loan providers and they are designed to cater specifically for students.
“Existing payday lenders are designed for people with a monthly income, but we’re designed for people who get their income three times a year from the SLC. We’ve had hugely positive feedback from our customers so far. Partly due to the way we’re priced and partly because how easy we are to work with and how sympathetic our default procedure has been.”
Mr Parks insisted that unlike some of the other ‘predatory’ firms on the market, Smart-Pig “is an option that can help people” and that they offer a cheaper alternative to other payday lenders.
“We are not going around campuses saying to people, you can borrow money from us. We are going around, looking for the people already using Wonga or already using Quick Quid and saying, “you know what there is something that is more suitable for you, that is cheaper and just for students.”
Despite interest rates of 855% APR, Mr Parks suggested that Smart-Pig is one of the best solutions for cash-strapped students. “There are many solutions for students in financial difficulty, we are one of them, some times we are the best one. We are not always the best one but we often are.”
Students should stay clear
Pete Mercer, vice president of the NUS, disagrees with Smart-pig’s business model and has warned students not to approach them, or any other payday lenders.
“They style themselves as a friend of students but in reality they are anything but.” Mr Mercer continued, “the idea that a payday loan should be the first port of call for a student struggling to make ends meet between loan payments is potentially very dangerous for students.”
Steve Perry, author of When Payday Loans Go Wrong agrees with this and told Impact why he thinks Smart-pig are no different from any other payday lenders.
Mr Perry said, “on the standard payday loan application form, not a single question is asked about a persons expenditure within a loan period, crucial to anyone with an ounce of intelligence to determine if the person has the ability to repay the loan. Instead they ask how much you earn, and how much do you want.”
Mr Perry went further, describing this as “a sick scandal” and told Impact he had found no evidence that Smart-pig ask any questions regarding expenditure, “a typical payday loan trend.”
Mr Perry analysed the payday loan market and found that Smart-pig are not actually a cheaper alternative to other payday lenders.
“Smart-Pig charge £25.30 for £100 borrowed for 30 days. The average payday lender, not including Wonga, but certainly including some of the largest lenders in the game charge £25 per 100 borrowed. If we were being specific, Smart-Pig are more expensive than the average payday lender, but lets not be specific - they are certainly on a par.”
An expensive night out
George Hews, a former business studies student, took out a payday loan of £400 to pay for a night out when he was at college and he said that he “spunked” all the money on alcohol.
After a mix-up with his wages, George had to pay back the loan a week later than he had stated on the application, which meant overall he had to pay back £636. The following month, George had to take out another payday loan as his wages did not cover the repayments. George has since learnt from his experiences and he told Impact that he would never again take out a payday loan unless it was a “life or death situation.” He also warned other students not to resort to a payday loan, “it seems like a good idea at first, but then the next month, you’re screwed.”
In response to students who have used payday loans to cover the cost of a night out, Mr Perry told Impact, “short term loans should not be used to cover the cost of a party, particularly given that the loan is unlikely to be repaid comfortably. Take control of your own finances, analyse the necessity of additional money and turn to those you trust the most before ever turning to a payday loan, or Smart-Pig - neither is designed to help in the long term.”
The rest of the website has a similar feel. On every page there is a different picture of an animated pig and friendly text, such as, “these Smart-Pig moments are nothing to be ashamed of – we’re here to make things easier for you.” Not too dissimilar from the ‘About Us’ section on Wonga’s which reads, “everybody has the occasional Wonga moment.”
Speaking to Impact however, cofounder of Smart-Pig, Tom Parks said that their company is different from the other short-term loan providers and they are designed to cater specifically for students.
“Existing payday lenders are designed for people with a monthly income, but we’re designed for people who get their income three times a year from the SLC. We’ve had hugely positive feedback from our customers so far. Partly due to the way we’re priced and partly because how easy we are to work with and how sympathetic our default procedure has been.”
Mr Parks insisted that unlike some of the other ‘predatory’ firms on the market, Smart-Pig “is an option that can help people” and that they offer a cheaper alternative to other payday lenders.
“We are not going around campuses saying to people, you can borrow money from us. We are going around, looking for the people already using Wonga or already using Quick Quid and saying, “you know what there is something that is more suitable for you, that is cheaper and just for students.”
Despite interest rates of 855% APR, Mr Parks suggested that Smart-Pig is one of the best solutions for cash-strapped students. “There are many solutions for students in financial difficulty, we are one of them, some times we are the best one. We are not always the best one but we often are.”
Students should stay clear
Pete Mercer, vice president of the NUS, disagrees with Smart-pig’s business model and has warned students not to approach them, or any other payday lenders.
“They style themselves as a friend of students but in reality they are anything but.” Mr Mercer continued, “the idea that a payday loan should be the first port of call for a student struggling to make ends meet between loan payments is potentially very dangerous for students.”
Steve Perry, author of When Payday Loans Go Wrong agrees with this and told Impact why he thinks Smart-pig are no different from any other payday lenders.
Mr Perry said, “on the standard payday loan application form, not a single question is asked about a persons expenditure within a loan period, crucial to anyone with an ounce of intelligence to determine if the person has the ability to repay the loan. Instead they ask how much you earn, and how much do you want.”
Mr Perry went further, describing this as “a sick scandal” and told Impact he had found no evidence that Smart-pig ask any questions regarding expenditure, “a typical payday loan trend.”
Mr Perry analysed the payday loan market and found that Smart-pig are not actually a cheaper alternative to other payday lenders.
“Smart-Pig charge £25.30 for £100 borrowed for 30 days. The average payday lender, not including Wonga, but certainly including some of the largest lenders in the game charge £25 per 100 borrowed. If we were being specific, Smart-Pig are more expensive than the average payday lender, but lets not be specific - they are certainly on a par.”
An expensive night out
George Hews, a former business studies student, took out a payday loan of £400 to pay for a night out when he was at college and he said that he “spunked” all the money on alcohol.
After a mix-up with his wages, George had to pay back the loan a week later than he had stated on the application, which meant overall he had to pay back £636. The following month, George had to take out another payday loan as his wages did not cover the repayments. George has since learnt from his experiences and he told Impact that he would never again take out a payday loan unless it was a “life or death situation.” He also warned other students not to resort to a payday loan, “it seems like a good idea at first, but then the next month, you’re screwed.”
In response to students who have used payday loans to cover the cost of a night out, Mr Perry told Impact, “short term loans should not be used to cover the cost of a party, particularly given that the loan is unlikely to be repaid comfortably. Take control of your own finances, analyse the necessity of additional money and turn to those you trust the most before ever turning to a payday loan, or Smart-Pig - neither is designed to help in the long term.”
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