Are payday loans for students bleeding us dry?
The National Union of Students has called on UK universities and colleges to ban adverts for payday loans, as three institutions forbid payday lenders from advertising on campus. Hannah Al-Othman investigates the impact of high street and internet lenders on students.
The payday lending industry in the UK is booming – people from all walks of life are turning increasingly to payday loans, and students are no exception.
But as the loans grow increasingly popular, so too do they come under greater scrutiny. Last year one of the market leaders, Wonga, came under fire for targeting pages on its website specifically at students, suggesting that its products may have advantages over traditional student loans.
And more recently, the NUS' national vice-president of welfare, Pete Mercer, criticised payday lenders for targeting vulnerable students on campus.
He said: "Students are struggling to make ends meet and this is having a real impact on their wellbeing and their education.
"It is clear that at least some payday lenders are targeting vulnerable students and the government has so far failed to act, so it is important we do everything we can to limit their ability to reach our campuses."
Natalie Downs could not agree more. A student at the University of East London, she took out payday loans to cover her living costs in London over the summer months.
Natalie was between student loan instalments and struggled to find part-time work, and so she visited high street lender The Money Shop.
With hindsight she wishes that it had been easier for her to find affordable credit –from her university or from a credit union, and that it had not be so much easier for her to take out a payday loan.
"I felt like there was no other option, at the time there was nothing I could do," she says. "I just went on the high street, there were no formal checks to check my eligibility or that I was receiving an income, I just needed to bring my chequebook, and I had to write post-dated cheques for each month."
Although Natalie only needed money to tide her over for a relatively short period of time, the high levels of interests than payday lenders demand meant that she was saddled with debt for months after.
“I was trapped; it was a constant cycle, even when I got a job the money was still coming out and I had to further borrow to clear that. I didn’t know how to end it and stop it from escalating further.”
Natalie’s case is far from unique. 21-year-old Rachel Lucas, from Burnley, also took out a loan of £400 with another well-known lender. Rachel admits that she didn’t really need the money, but having access to such easy credit was too tempting to resist.
She says: “My wage didn't go far enough; I didn't want to miss out on events so I borrowed. It was too easy; they seem not to care who they lend money to as long as they can stick hefty interest on your loan.
“I paid my debt off slowly, £30 a week for six or so months. It was horrible, especially as I lost my job soon after and I was paying out £112 a fortnight on debt and bills, only having £10 for myself to pay for living costs including food.”
Last year, independent charity the Money Advice Trust reported that its National Debtline service took over 20,000 calls for help with payday loans in 2012 - a 94 per cent increase on the previous year, and huge 4,200 per cent increase since the onset of the financial crisis in 2007.
In real terms, this means that last year the Debtline took a call for help with payday loans for every seven minutes that its phone lines were open.
Hannah Walters is a debt advisor who works for the National Debtline, and she deals with people struggling to repay payday loans every single day. She believes that one of the main problems with payday loans is that many companies do not carry out appropriate credit checks, which means that it is far too easy for people to take out loans that they will never be able to pay back.
“We see a lot more younger people taking them out, it’s not necessarily always because they need to," she says. "They’re easy to access, and once people take them out they get into a bit of a cycle. Once they’ve had one they realise that they can’t pay it back at the end of the month so they take out another one to pay that one back and the interest and charges do mount up.
“We have people who have taken out a £100 loan and phone up because they’re now being chased for £2,000, which isn’t fair.”
But some will argue that regulation of the industry alone is not enough – and that an increase in payday lending is merely symptomatic of bigger problems within the student community.
Christians Against Poverty is a UK-wide charity that offers free debt counselling services, and the charity also runs a money education course aimed at students.
Jan Spooner is the centre manager at the Altrincham branch, and she believes that while tighter regulation of the industry important, this should be coupled with financial education, to encourage young people to take responsibility for their finances, and turn away from payday lenders.
She says: “I think what is needed is for everybody, but particularly for young people, is money education – that people learn how to budget, that people are given information how to build a budget, how to live with a budget.
While Jan recognises that for some people – particularly those on low incomes – affordable credit options do need to be available, she believes that if financial education were taught from a young age as part of the national curriculum, fewer students would find themselves turning so readily to high-cost lenders.
But even with the best financial education, there will inevitably be some students who still struggle to manage their money, and payday lenders will aim to be there to bridge the gaps.
A Google search of 'payday loans for student' reveals that several companies even target this market specifically – one, Smart-Pig.com, offers loans of up to £250 over 90-day periods at an APR of 1,264 per cent.
To examine just how easy it is to access credit I applied for a payday loan through high street pawn shop Cash Generator’s website. Despite being a full-time student with only a part-time job, it took just seven minutes to apply and be provisionally accepted for a loan, with only the barest details entered correctly – the loan was still granted with my occupation listed as ‘other’ and with an incorrect employer phone number.
After I did not complete on the loan, a barrage of communication followed – no less than nine text messages and almost as many emails were sent, urging me to finalise the agreement.
In response, a Cash Generator spokesperson said:
"The application for a loan was not completed, and a full loan offer was not made. The applicant dropped out before the review by our staff, at which point we would have verified employment details and identified the incorrect information supplied.
“Like most companies, when a customer indicates they want a service but then do not complete, we would follow up. Contact will reduce as it becomes clear that the applicant doesn't want to progress to the next stage of approval."
The Money Shop declined to respond to repeated requests for comment.
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