I took out a payday loan – but at least I’m ashamed of it
Legal loan sharks are normalising debt and, worst of all, the Government is cosying up to them
Wonga: is the company really
soft and cuddly?
9:02PM GMT 31 Oct 2012
Of all the stupid, shameful things I have admitted to in this newspaper –
watching The X Factor, being in love with the Duchess of Cambridge – having
taken out a payday loan must top them all.
I ummmed and ahhed about revealing this for quite some time, because coming
to work naked would be less embarrassing, less humiliating, less ignominious
than admitting that, over the course of two years, I paid almost three grand for
that £700 loan, a loan I took out just to pay for a flight to Kenya so I could
attend my best friend’s wedding, a marriage that dissolved within a year,
meaning that, in essence, I had spent £3,000 to (sort of) see a pride of lions,
get chronic sunstroke and be bitten to buggery by a load of malarial mosquitoes.
I was a fool, an idiot, a wilful ignoramus, and I became trapped in a cycle
of endless, knowing stupidity. That is how payday loans work, and how the people
behind them make their millions.
When applying for a quick-fix cash advance to tide you over till you next get paid, you are made aware that the more you put off paying it back, the larger the debt will get. But as you don’t have the money at that very moment (you never had the money in the first place, which is why you took out the loan…), you can bung the lender a few quid back to keep them happy for the time being, putting off the inevitable for a couple more weeks, at least until they start pursuing you aggressively for their money. Which, of course, they have every right to do (although are four phone calls before 8am on “pay-up day” really necessary?). But, then, they probably prefer you just to throw them another couple of hundred quid to defer the loan for a month, thus continuing the cycle for a bit longer.
When applying for a quick-fix cash advance to tide you over till you next get paid, you are made aware that the more you put off paying it back, the larger the debt will get. But as you don’t have the money at that very moment (you never had the money in the first place, which is why you took out the loan…), you can bung the lender a few quid back to keep them happy for the time being, putting off the inevitable for a couple more weeks, at least until they start pursuing you aggressively for their money. Which, of course, they have every right to do (although are four phone calls before 8am on “pay-up day” really necessary?). But, then, they probably prefer you just to throw them another couple of hundred quid to defer the loan for a month, thus continuing the cycle for a bit longer.
You can scream “Stupid girl!” at me, but that is no solution to the growing
popularity among the middle classes of the payday loan, a product of the
financial buffoonery that increasing numbers of us have come to know and not
love over the past few years.
Last month, the Consumer Credit Counselling Service revealed that it had
received five times the number of calls from people struggling to keep up with
repayments to payday lenders as it did three years ago. It is thought that up to
two million people could be payday loan customers, many having more than one
debt, and some as many as 10.
Wonga, Britain’s biggest payday lender, is a supporter of Newcastle United.
Its cartoony commercial, featuring a couple of cutesy grannies, is screened
regularly on late-night television. It is easy for would-be borrowers to sign up
for its loans via Facebook.
It has also been censured by the Office of Fair Trading for employing “aggressive and misleading” debt collection practices. Nevertheless, Jonathan Luff, one of David Cameron’s most senior advisers, has just announced he is to leave Downing Street for a new position with the company, which has just posted profits of £45.8 million, treble its results of the year before.
Luff’s new boss, Errol Damelin, argues that Wonga’s loans provide “social mobility” – ha! – though I find it doubtful that anyone ever moved anywhere other than down thanks to a short-term loan with a typical APR of 4,214 per cent. Let us not dwell on what a man earning a rumoured £1.6 million knows about the need to take out a bridging loan.
Payday lenders tend to defend such astronomical repayment rates with the argument that a measurement of annual interest skewers the true amount of a short-term loan.
Another online lender, Cash Lady, which has a glitzy website featuring a kittenish woman clutching a wad of £50 notes, helpfully explains that “it’s a bit like being given the annual rate for a hotel room when you just want it for a weekend”. But that’s completely disingenuous, because the kind of people who get payday loans are exactly the kind of people who need to stay for a year – it’s just that they tend not to have the credit rating to call at more traditional establishments, with more comfortable terms. Plus payday loan companies aren’t known for double-checking backgrounds, instead choosing the instant option of magicking money into your account, as if it is free cash put there like a rabbit out of a hat.
At the time of the credit crunch, a lot of fuss and bother was made about debt and living beyond our means, and how banks and lenders should not throw money willy-nilly at people who cannot afford to pay it back. Better the devil you know, eh?
Legal loan sharks have simply stepped in to the breach, devoid of proper regulation that might provide a cap on lending, and now, worst of all, this Government is actually cosying up to them. As was revealed in The Daily Telegraph a fortnight ago, Wonga executives attended the recent Conservative Party conference and paid £1,250 a head for face-to-face meetings with ministers from the Treasury and the Department for Business.
Instead of financial lessons about loans being learnt, it feels as if the normalisation of debt is close to being complete. You never hear anybody talk about “saving up” any more, unless it’s for a house, and even then that process is only in place so that you can take out a whopping great loan. Entire lives and lifestyles are still built on credit, and it is seen as uncontroversial that one of the Prime Minister’s closest employees goes to work for a company that has been investigated by the OFT.
Thank goodness I feel so embarrassed about ever having taken out a payday loan. It will be far worse when the day comes that there is no shame to it at all.
It has also been censured by the Office of Fair Trading for employing “aggressive and misleading” debt collection practices. Nevertheless, Jonathan Luff, one of David Cameron’s most senior advisers, has just announced he is to leave Downing Street for a new position with the company, which has just posted profits of £45.8 million, treble its results of the year before.
Luff’s new boss, Errol Damelin, argues that Wonga’s loans provide “social mobility” – ha! – though I find it doubtful that anyone ever moved anywhere other than down thanks to a short-term loan with a typical APR of 4,214 per cent. Let us not dwell on what a man earning a rumoured £1.6 million knows about the need to take out a bridging loan.
Payday lenders tend to defend such astronomical repayment rates with the argument that a measurement of annual interest skewers the true amount of a short-term loan.
Another online lender, Cash Lady, which has a glitzy website featuring a kittenish woman clutching a wad of £50 notes, helpfully explains that “it’s a bit like being given the annual rate for a hotel room when you just want it for a weekend”. But that’s completely disingenuous, because the kind of people who get payday loans are exactly the kind of people who need to stay for a year – it’s just that they tend not to have the credit rating to call at more traditional establishments, with more comfortable terms. Plus payday loan companies aren’t known for double-checking backgrounds, instead choosing the instant option of magicking money into your account, as if it is free cash put there like a rabbit out of a hat.
At the time of the credit crunch, a lot of fuss and bother was made about debt and living beyond our means, and how banks and lenders should not throw money willy-nilly at people who cannot afford to pay it back. Better the devil you know, eh?
Legal loan sharks have simply stepped in to the breach, devoid of proper regulation that might provide a cap on lending, and now, worst of all, this Government is actually cosying up to them. As was revealed in The Daily Telegraph a fortnight ago, Wonga executives attended the recent Conservative Party conference and paid £1,250 a head for face-to-face meetings with ministers from the Treasury and the Department for Business.
Instead of financial lessons about loans being learnt, it feels as if the normalisation of debt is close to being complete. You never hear anybody talk about “saving up” any more, unless it’s for a house, and even then that process is only in place so that you can take out a whopping great loan. Entire lives and lifestyles are still built on credit, and it is seen as uncontroversial that one of the Prime Minister’s closest employees goes to work for a company that has been investigated by the OFT.
Thank goodness I feel so embarrassed about ever having taken out a payday loan. It will be far worse when the day comes that there is no shame to it at all.
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