Wonga, the payday lender, is paying customers up to £100 to sell its loans to their friends on Facebook, despite charging more than 20 times the interest of a standard credit card.

Existing customers will receive £20 if they persuade a friend on Facebook to use a discount code on their first loan with Wonga, which will exempt them from a transaction fee of £5.50.

But research compiled for the Herald shows that borrowing £400 over a month from Wonga would cost £119.98 in interest, compared to just £5.88 on a Barclaycard credit card and £30 on an authorised overdraft from Bank of Scotland.

Even those with a bad credit rating would only pay £10.61 if they withdrew the cash on a Barclaycard charging 29.9%.

As long as they have used Wonga before, Facebook users can recommend the firm, which charges 4214% APR, to five friends, earning £20 each time. Several sites have now sprung up to offer promo codes when people type "Wonga" into their search engines.

Stuart Carmichael, of the Glasgow-based charity Debt Support Trust, said: "This is a shocking marketing ploy to lure people into credit who may not even require this funding.

"Wonga seem to be targeting young people who may not be finance-savvy through their TV advertising and social marketing."

Wonga promises to put cash in people's accounts in 15 minutes but the alternatives can offer the same amount on the same day, if not instantly from a cash machine.

Chief executive Errol Damelin has frequently said the firm is aimed at tech-savvy young professionals who want extra cash to fund holidays and trips to music festivals.

But the firm recently removed a page on its website that promoted payday loans as an alternative to student loans after the National Union of Students deemed it "predatory".

The Office of Fair Trading is currently investigating 50 major payday lenders over concerns the industry is targeting financially vulnerable people. Wonga says it avoids this danger by accepting only 30% of applications for loans.

Wonga also sponsors Hearts, this year's Scottish Cup Finalists, and has been quick to tell Facebook users this week that it's "very excited" for an all-Edinburgh final.

But English football fans began a campaign last month to remove Wonga advertisements from the websites of clubs, calling for the promotion of credit unions instead.

Research from Debt Support Trust shows Wonga would be 13 times more expensive than borrowing £400 from two typical credit unions, London Mutual and Hi Scot Credit Union, which would cost £8.81 over a month.

Wonga has frequently claimed that its loans are cheaper than going into an unauthorised bank overdraft. However, it would cost half the amount to borrow £100 over 20 days on an authorised overdraft from Royal Bank of Scotland.

A spokesman from Wonga said: "We run a refer-a-friend scheme with existing customers and we have more than 80,000 engaged customers on our Facebook page. The scheme came about because many existing customers were referring friends to Wonga anyway and many were asking us about a potential reward for doing so. The £5.50 discount element is a code for removing the standard £5.50 cash transmission fee we charge."

Mr Carmichael said: "Wonga's fees start to become the most expensive the more you borrow. It is more expensive than credit unions, authorised overdrafts, credit cards and in some cases unauthorised overdrafts."

He said Wonga charged a £20 fee as well as ongoing interest on any loan not repaid on time, which ranked it among the most expensive payday lenders.

Iona Bain writes the YoungMoneyBlog