Wonga’s ‘lunchtime loans’ offer poor valuePoor value payday loans being offered at lunchtime

10 October 2011

Payday loan companies offer poor value

Payday loan companies offer poor value and should only be used as a last resort. 

Payday loan lender Wonga has released worrying new data that a large number of so-called 'lunchtime loans' applications received from full-time employed.

Lunchtime loans increase

Payday loan lender Wonga has released new data showing that it received 200,000 applications between 12 and 2pm from people in full-time employment this year.

The volume of applications received by Wonga peaks at around 1.15pm on most days – just after many people start their lunch break, leading the lender to dub the trend ‘lunchtime loans’.

But a recent Which? investigation found that the payday loan industry is rife with poor practice, with Wonga.com, which quoted £36.72 for a 30-day loan of £100 – equivalent to an APR of 4,394%, offering the most expensive loan we found (see table below.) The same amount borrowed through an authorised overdraft from Which? Recommended Provider Co-operative Bank would cost just £1.35.

Which? finds payday loans failings

Failings unveiled by the research included potential breaches of the Consumer Credit Act, poor privacy provisions and inflated APRs.

With the take up of payday loans on the increase, we've reported two lenders - Paydaykong.com and Swiftmoney.co.uk - to the Office of Fair Trading (OFT) and reported Casheuronet UK, which operates Quick-payday.co.uk and Quickquid.co.uk, to the Information Commissioners' Office (ICO).

Which? executive director, Richard Lloyd, said: 'Payday loans might seem like a good solution for people whose money won't stretch to the end of the month, but they should be treated as an absolute last resort. They can be an incredibly expensive way to borrow and we've uncovered a long list of poor practice by lenders.

Payday loans and overdrafts compared

The table below compares the cost of borrowing £100 over one month using payday loans and bank and building society overdrafts.

£100 for one month: how much will it cost?
Payday loan companies [a]
Paydaybank.co.uk£25.00 [b]
Paydaykong.com£25.00 [c]
Wonga.com£36.72 [c]
Unauthorised bank overdrafts
Co-operative Bank£21.24
Nationwide BS£21.50
First Direct£25.00
Lloyds TSB£81.46
Barclays Bank£110.00
Halifax/Bank of Scotland£150.00 [d]
NatWest/Royal Bank of Scotland£186.00
Authorised bank overdrafts
First Direct£0
Co-operative Bank£1.35
Nationwide BS£1.61
Barclays Bank£1.64
NatWest/Royal Bank of Scotland£1.69
HSBC£1.69 [e]
Santander£5.00 [f]
Lloyds TSB£6.61 [g]
Halifax/Bank of Scotland£26.00 [d]

Table notes

  1. We reviewed the biggest online payday lenders by 12-week UK Google clickthrough rate for the search term 'payday loan'. We have not included services advertised as aggregators. Swiftmoney.co.uk is not included in the table due to its lack of charges information and its inappropriate level of site security and personal detail required.
  2. 28-day loan
  3. 30-day loan
  4. After deducting the £5 that Halifax pays if the customer funds their account with at least £1,000 each month
  5. Assumes this is the first overdraft in the last six months. If not, fee is £26.69
  6. £0.50 per day, capped at £5 per month
  7. Includes £5 per month overdraft fee

More on this…

60 second guide to payday loans - how payday loans work and pitfalls to watch out for
Payday loans - designed to trap you in a cycle of debt? - have your say on the Which? Conversation
Finding the best ways to borrow - Which? Money experts explore the alternatives to payday loans