Student Loans | ‘Loan Shark’ Firm Targets Students: 4,000% Interest Offered As Alternative To Student Loans

January 14, 2012 – 8:10 am

By Sarah Harris


students are being targeted by a ‘legal loan shark’ offering cash at an astonishing 4,214 per cent annual rate of interest. is marketing its exorbitant scheme as an alternative to Government-backed Student Loans – which attract interest rates of just 1.5 per cent.

Charities warn the payday loan company is ‘moving in for the kill’ following the Coalition’s shake-up of higher education which will see fees rise to as high as 9,000 a year in the autumn.

Universities have already revealed cuts totalling 14million to bursary schemes for the poorest, which critics fear may lead to even more students being ‘preyed’ on by such companies.

The idea behind loans is that students borrow relatively small sums, up to a maximum of 1,000, over a short period of time.

The company’s website tells undergraduates that ‘the problem with student loans is that they potentially encourage you to live beyond your means’.

It adds: ‘Student loans are usually far cheaper than your standard personal loan.

‘But there can be a downside – you potentially end up borrowing more than you need, while a nasty debt accumulates for your graduation that could take years to repay.

‘With a Wonga loan, the interest rate is much higher, but you only borrow it for a month and pay the loan back on a date that suits.’

The loan company could, for example, allow a student to borrow 400 for 28 days. The customer would repay 517.48 including interest and fees, which is an effective interest rate of almost 30 per cent.

However, loan companies are also legally required to express this interest in terms of the APR – annual percentage rate.

This complex formula, which takes into account the fact the interest and charges are being paid off after a short period, produces a standard interest rate which allows consumers to compare loans with different firms.

On this basis, the 400 loan scores an APR of 4,214 per cent.

The Helena Kennedy Foundation, an educational charity that provides financial support to poor students, said had spotted a ‘great commercial opportunity to prey on student hardship’.

It has already been contacted by a student who has been ‘stung’ by Wonga and fears that more are taking out loans.

Wes Streeting, chief executive of the charity, said: ‘Wonga’s suggestion that students should resort to their rip-off rates instead of a low interest student loan is self-serving and potentially very misleading to students.

‘Taking out commercial debts through credit cards and companies like Wonga should always be the last resort to avoid being caught in a cycle of unsustainable debt.

‘While universities are cutting back on financial support for students it is clear that legal loan sharks like Wonga are moving in for the kill.’

A Wonga spokesman denied ‘actively’ targeting students and later removed the student pages in question from its website.

He said: ‘Our decisions about any students who do choose to apply are based on the same rigorous checks we perform on all applications, but we do not believe working, adult students should be excluded from a popular credit option.’

In December, official customer body, Consumer Focus, said that regulation of payday companies was not ‘strong enough’. Currently, the firms are policed by a voluntary code of practice.



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