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| Credit unions v Wonga | Credit unions v Wonga |
| (2 months later) | |
| Credit union | Credit union |
| How much can you borrow? Varies by credit union; for example, London Mutual Credit Union's payday loans arm, CUOK, will let you borrow between £100 and £400 if you're a new customer, or up to £1,000 if you are an existing customer. | How much can you borrow? Varies by credit union; for example, London Mutual Credit Union's payday loans arm, CUOK, will let you borrow between £100 and £400 if you're a new customer, or up to £1,000 if you are an existing customer. |
| How much does it cost? By law, credit unions cannot charge more than 2% interest a month on the amount owed – an APR of 26.8%. At that rate, the typical interest on a £400 loan payable over one month is £8. Glasgow Credit Union is advertising loans from 6.9% APR. But you usually have to pay to become a member of a credit union; in the case of London Mutual Credit Union it's £7 (a £2 membership fee, plus £5 in a credit union savings account), which can be deducted from your first loan. | How much does it cost? By law, credit unions cannot charge more than 2% interest a month on the amount owed – an APR of 26.8%. At that rate, the typical interest on a £400 loan payable over one month is £8. Glasgow Credit Union is advertising loans from 6.9% APR. But you usually have to pay to become a member of a credit union; in the case of London Mutual Credit Union it's £7 (a £2 membership fee, plus £5 in a credit union savings account), which can be deducted from your first loan. |
| How quickly can you get a loan? In some cases you can get your loan paid into your bank account on the same day rather than having to wait perhaps three days, though there will typically be a fee to pay. | How quickly can you get a loan? In some cases you can get your loan paid into your bank account on the same day rather than having to wait perhaps three days, though there will typically be a fee to pay. |
| What checks do they do before lending? Like banks and building societies, they will make use of credit reference agencies in deciding whether to lend to someone. | What checks do they do before lending? Like banks and building societies, they will make use of credit reference agencies in deciding whether to lend to someone. |
| How many branches are there? Some credit unions have several branches/collection points; others will have one main office. | How many branches are there? Some credit unions have several branches/collection points; others will have one main office. |
| How do they promote themselves? Not via Wonga-style national advertising campaigns – they are more about serving their local communities. Restrictive rules on who can join have been loosened, but many are still limited to certain groups – for example, to join Glasgow Credit Union, you have to live or work within the 'G' postcode area. | How do they promote themselves? Not via Wonga-style national advertising campaigns – they are more about serving their local communities. Restrictive rules on who can join have been loosened, but many are still limited to certain groups – for example, to join Glasgow Credit Union, you have to live or work within the 'G' postcode area. |
| How financially stable are they? Like banks and building societies, credit unions are covered by the Financial Services Compensation Scheme, which protects savings up to £85,000. But at least eight credit unions have so far ceased trading this year, and this comes on top of the six that collapsed in 2012. Some of these have been hit by bad debts on their loans, and occasionally the police get involved. | How financially stable are they? Like banks and building societies, credit unions are covered by the Financial Services Compensation Scheme, which protects savings up to £85,000. But at least eight credit unions have so far ceased trading this year, and this comes on top of the six that collapsed in 2012. Some of these have been hit by bad debts on their loans, and occasionally the police get involved. |
| Image: They're certainly not flashy. Basic and local are the keywords. | Image: They're certainly not flashy. Basic and local are the keywords. |
| What they say: "They are run 'by the members, for the members', so as a credit union member you have a real say in how your financial service provider operates," says trade body ABCUL (the Association of British Credit Unions Ltd). | What they say: "They are run 'by the members, for the members', so as a credit union member you have a real say in how your financial service provider operates," says trade body ABCUL (the Association of British Credit Unions Ltd). |
| What the critics say: Criticising credit unions isn't really the done thing, though a government-commissioned report from May 2012 stated that "... the current [UK] credit union model is not financially sustainable ... the current model remains sub-optimal and significant change to business models, customer profiles and infrastructure support are required ..." | What the critics say: Criticising credit unions isn't really the done thing, though a government-commissioned report from May 2012 stated that "... the current [UK] credit union model is not financially sustainable ... the current model remains sub-optimal and significant change to business models, customer profiles and infrastructure support are required ..." |
| Wonga | Wonga |
| How much can you borrow? Anything from £1 to £400 if you're a new customer; up to £1,000 if you are an existing customer. | How much can you borrow? Anything from £1 to £400 if you're a new customer; up to £1,000 if you are an existing customer. |
| How much does it cost? There's a £5.50 "transmission fee", then interest is 1% a day. The quoted APR is a phenomenal 5,853%. | How much does it cost? There's a £5.50 "transmission fee", then interest is 1% a day. The quoted APR is a phenomenal 5,853%. |
| How quickly can you get a loan? The website boasts that borrowers get an answer "in seconds" and if approved could get their cash in just five minutes. | How quickly can you get a loan? The website boasts that borrowers get an answer "in seconds" and if approved could get their cash in just five minutes. |
| When do you have to pay them back? It depends when you apply – the "sliders" on Wonga's site show the maximum loan period. Currently it is 46 days, but in the past it has been up to 60. The loan is collected from a customer's bank account via a continuous payment authority on their debit card ; if the money is not there when Wonga tries to collect it the first time, it will try again. | When do you have to pay them back? It depends when you apply – the "sliders" on Wonga's site show the maximum loan period. Currently it is 46 days, but in the past it has been up to 60. The loan is collected from a customer's bank account via a continuous payment authority on their debit card ; if the money is not there when Wonga tries to collect it the first time, it will try again. |
| What checks does it do before lending? It says it checks thousands of pieces of data before making a loan. However, it has been a victim of fraud, and some customers without jobs have managed to get through its checks. | What checks does it do before lending? It says it checks thousands of pieces of data before making a loan. However, it has been a victim of fraud, and some customers without jobs have managed to get through its checks. |
| How many branches are there? None. Wonga does its lending online – not just in the UK but in several other countries including Canada, South Africa and Poland. | How many branches are there? None. Wonga does its lending online – not just in the UK but in several other countries including Canada, South Africa and Poland. |
| How does it promote itself? Wonga uses "cute" puppets. Through TV ads and sponsorships (the firm has just signed a deal with Channel 5 to back a new show, Go Hard or Go Home), print ads, on buses and through football team sponsorships – its deal with Newcastle had been the subject of a battle with the club's striker Papiss Cissé, although that has now been settled. In 2011, the firm spent an estimated £16m on advertising. | How does it promote itself? Wonga uses "cute" puppets. Through TV ads and sponsorships (the firm has just signed a deal with Channel 5 to back a new show, Go Hard or Go Home), print ads, on buses and through football team sponsorships – its deal with Newcastle had been the subject of a battle with the club's striker Papiss Cissé, although that has now been settled. In 2011, the firm spent an estimated £16m on advertising. |
| How financially stable is it? Its last set of accounts, for 2011, showed revenues of £185m, however it wrote off 41% of that through bad debts. | How financially stable is it? Its last set of accounts, for 2011, showed revenues of £185m, however it wrote off 41% of that through bad debts. |
| Image: Hi-tech and modern. | Image: Hi-tech and modern. |
| What it says: "Wonga is not the cheapest way to borrow money, but we are the fastest, most convenient and most flexible lender in the UK. It's a bit like using a taxi to get around – it's not economical if you use one too frequently, but paying a premium for speed, convenience and flexibility in the short term makes perfect sense from time to time." | What it says: "Wonga is not the cheapest way to borrow money, but we are the fastest, most convenient and most flexible lender in the UK. It's a bit like using a taxi to get around – it's not economical if you use one too frequently, but paying a premium for speed, convenience and flexibility in the short term makes perfect sense from time to time." |
| What the critics say: Stella Creasy, the Labour MP who has spoken out against what she calls "legal loan sharks", said of Wonga in 2012: "The mistake they are making is to assume that people, when faced with a financial penalty, have the option to avoid it. In their mind they have the option of choosing not to extend a loan, when they see the costs. What they don't understand is that they are dealing with a clientele who doesn't have that choice." | What the critics say: Stella Creasy, the Labour MP who has spoken out against what she calls "legal loan sharks", said of Wonga in 2012: "The mistake they are making is to assume that people, when faced with a financial penalty, have the option to avoid it. In their mind they have the option of choosing not to extend a loan, when they see the costs. What they don't understand is that they are dealing with a clientele who doesn't have that choice." |
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