Wonga's short-term loans are useful ‘when you're waiting on money to come in and you need to buy or pay for something unexpected now'. The problem with student loans, according to Wonga, is that they ‘potentially encourage you to live beyond your means'. Whereas Wonga encourages budgeting and responsible borrowing enabling students to meet those unexpected costs such as saving up for ‘a weekend mini-break' or ‘plane tickets to the Canary Islands'.
In the US, students are often able to become members of community co-operatives - credit unions - which are owned and controlled by both the students and university employees. Unlike Wonga, credit unions provide affordable financial services alongside sound financial advice and education. Such a system in the UK could benefit students - unlike Wonga who seem determined to prey on their perceived lack of financial awareness by encouraging short term borrowing at a high cost.
As Alex Hern points out on Left Foot Forward:
If you take out a £400 Wonga loan and pay it back thirty days later, you will pay over £125 in interest. If you take out £400 more than you need on your student loan, it will take three and a half years to cost that much in interest, and that's assuming our current high levels of inflation stand.
Wonga's ‘friendly' advice also fails to point hard-up students in the direction of university hardship funds which provide loans and grants to help students through difficult times.
The latest predatory attempt by Wonga to break into new markets underlines the importance of Labour and Co-operative MP Stella Creasy's ongoing campaign to cap the cost of credit and prevent the sorts of practices of payday lenders.
The Co-operative Party is a strong supporter of Stella's campaign and we want to see much more action from the government to protect consumers from predatory lenders - especially at a time when budgets are being squeezed - as well as promoting responsible and accountable forms of financial institutions, such as credit unions.
