Wonga.com

[XTR2Turbo]

I've just been on the internet and saw a banner add for WONGA.com

 

They are an online loan firm. 

 

wait for it ..

 

 

APR only 5853%

 

Unbelievable. At first I thought it was a misprint but clicked on the link and sure enough that's the rate

 

I know some people may be desperate at times but .....

[Dave Eastwood (Gadgetman) - Club Chairman]

Not that I'm defending them, but that's the problem with short term loans - use them incorrectly over extended periods and the interest is astronomical.

 

Mind you, my thought whenever I see one of these is, if you're that short this month you need a payday loan. what about next month, aren't you just going to be in the same boat when it comes to paying it off.

[Paul Gibney - Lancashire AO]

best of all they are sponsoring Newcastle utd this season.......

[D7PNY]

Not that I'm defending them, but that's the problem with short term loans - use them incorrectly over extended periods and the interest is astronomical.

 

Mind you, my thought whenever I see one of these is, if you're that short this month you need a payday loan. what about next month, aren't you just going to be in the same boat when it comes to paying it off.

That's it...Borrow £50 and pay back £70 or whatever works out at ridiculous rates when APR calculated etc.

 

Slippery slope if you ask me and I think that's why these sorts of companies always come under fire.

 

Loan sharks essentially that just happen to be legal in my eyes.

 

Dave

[Norman Verona]

Dave, you have it in one.

 

It shouldn't be difficult to limit APR to a sensible rate. The fact that it's supposed to be a short term loan doesn't mean you should pay that sort of interest.

 

To borrow £50 for a month, £600 over a year, would cost about £113.40 (18.9%) or £9.45 for the month.

 

I wonder how many MPs are shareholders in these loan sharks?

[Wile E. Coyote]

It shouldn't be difficult to limit APR to a sensible rate. The fact that it's supposed to be a short term loan doesn't mean you should pay that sort of interest.

 

To borrow £50 for a month, £600 over a year, would cost about £113.40 (18.9%) or £9.45 for the month.

 

Just playing Devil's Advocate, have you considered that:

 

1) The costs associated with the paperwork for a loan aren't much different for a £50 loan and a £1000 one? or

2) Managing collections of lots of small repayments costs more than managing a smaller number of larger ones? or

3) Their market will have higher default rates than those serving better risks? and

4) The costs of chasing non-payers - which they absolutely need to do without exception and robustly if people aren't going to take the mickey out of them - will also be massively higher than dealing with low-default client bases?

 

Those costs will have a material impact on the effective APR...  and it won't be worth ANY lender doing unless they'll cover their costs and make a fair margin.

 

None of that is to say that 5000%+ is reasonable, but it is worth considering the other side of the equation and the fact that if these firms didn't exist the borrowing options available to some people would be distinctly less palatable.

[D7PNY]

Just playing Devil's Advocate, have you considered that:

 

1) The costs associated with the paperwork for a loan aren't much different for a £50 loan and a £1000 one? or

2) Managing collections of lots of small repayments costs more than managing a smaller number of larger ones? or

3) Their market will have higher default rates than those serving better risks? and

4) The costs of chasing non-payers - which they absolutely need to do without exception and robustly if people aren't going to take the mickey out of them - will also be massively higher than dealing with low-default client bases?

 

Those costs will have a material impact on the effective APR...  and it won't be worth ANY lender doing unless they'll cover their costs and make a fair margin.

 

None of that is to say that 5000%+ is reasonable, but it is worth considering the other side of the equation and the fact that if these firms didn't exist the borrowing options available to some people would be distinctly less palatable.

That's kind of what I meant by borrowing £50 and paying back £70 turning into a ridiculous APR.

 

It's all relative to the fact that ANY short term borrowing will turn into a ridiculous APR when used as long term debt.

 

Totally agree with you that all these companies are doing with these rates (initially) is covering their costs in the short term and the products they offer are reasonable in my eyes. It's when these debts inevitably become long term borrowings that the ethical issues come into play in my eyes.

 

The people involved cannot get loans elsewhere etc so are stuck in a merry-go-round.

 

I don't actually have any sympathy for those that get into that mess though I must say.  If you are stupid enough to do it in the first place...

 

Dave

[Wile E. Coyote]

That's kind of what I meant by borrowing £50 and paying back £70 turning into a ridiculous APR.

 

It's all relative to the fact that ANY short term borrowing will turn into a ridiculous APR when used as long term debt.

 

Totally agree with you that all these companies are doing with these rates (initially) is covering their costs in the short term and the products they offer are reasonable in my eyes. It's when these debts inevitably become long term borrowings that the ethical issues come into play in my eyes.

 

The people involved cannot get loans elsewhere etc so are stuck in a merry-go-round.

 

I don't actually have any sympathy for those that get into that mess though I must say.  If you are stupid enough to do it in the first place...

 

Dave

 

Agree with the vast majority of that, Dave, but I do have some sympathy for some of those who get into that sort of mess - if you had hungry kids, and really didn't know where to turn to in order to feed them, then it's easy to see how you might view it as a sensible (albeit temporary) solution.  But all too often it does spiral.

 

However, advertising that suggests you should use that sort of loan to go on holiday, buy unnecessary consumer goods, or spruce the house up, (which one company seems to use) takes it into a whole different league of irresponsibility.

[Norman Verona]

1) The costs associated with the paperwork for a loan aren't much different for a £50 loan and a £1000 one? or

 

These companies don't produce paperwork by humans, their computer system does it

2) Managing collections of lots of small repayments costs more than managing a smaller number of larger ones? or

 

Again, the computers take it from your bank

 

3) Their market will have higher default rates than those serving better risks? and

 

If they did proper credit checks they would have the same default rates as the banks who do use credit scoring.

 

4) The costs of chasing non-payers - which they absolutely need to do without exception and robustly if people aren't going to take the mickey out of them - will also be massively higher than dealing with low-default client bases?

 

See answer to 3 above.

 

Those costs will have a material impact on the effective APR...  and it won't be worth ANY lender doing unless they'll cover their costs and make a fair margin.

 

Not completely true, the credit card companies manage on a whopping 18.9%

 

None of that is to say that 5000%+ is reasonable, but it is worth considering the other side of the equation and the fact that if these firms didn't exist the borrowing options available to some people would be distinctly less palatable.

 

I understand that anyone who genuinely can't feed their kids can get a short term loan from the social security office.

Lets be real about this, they're working on the speed of putting money in your bank, via a phone app. They work on the fact that it won't be repaid on time and loan more money to existing debtors. If we had any sense we would ban this type of loan company as they're not doing anyone any good, except themselves.

[D7PNY]

Agree with the vast majority of that, Dave, but I do have some sympathy for some of those who get into that sort of mess - if you had hungry kids, and really didn't know where to turn to in order to feed them, then it's easy to see how you might view it as a sensible (albeit temporary) solution.  But all too often it does spiral.

 

However, advertising that suggests you should use that sort of loan to go on holiday, buy unnecessary consumer goods, or spruce the house up, (which one company seems to use) takes it into a whole different league of irresponsibility.

On reflection, I was maybe a little harsh with a somewhat sweeping statement and you are right, sometimes just gets out of control for some folk.

 

Edited to add:  My sympathy in those situations would still be somewhat limited.  I would empathise with their intentions but not for allowing themselves to end up in such a mess.

 

Most of us have had times in our lives where we have struggled to put food on the table etc but it's how you deal with those situations that shapes your future in my opinion.  Christ, I remember (many years ago now thankfully) when I couldn't even get a tenner out the whole in the wall and had to switch food at farmfoods!

[M444TTB]

A lot of the advertising centres on 'my bank wouldn't give me the loan'. Look what happened when many just lent money out to all sorts (many the sort who take these loans). Hardly a surprise we don't want to get involved there any longer.

Personally I'm not sure quite how I feel about pay day lenders. I ignore the nonsense APR but there does seem to be encouragement beyond using it as a lifeline and I understand the lenders are keen to let you roll it over once or twice (or ten times!).

[M444TTB]

Norman - Your answer to 3 is incorrect. Default rates will e determined by the business you write. That's why we steer clear of this market and have good default rates. I imagine the biggest department at wonga is collections (assuming they do it in house).

[Wile E. Coyote]

1) The costs associated with the paperwork for a loan aren't much different for a £50 loan and a £1000 one? or

 

These companies don't produce paperwork by humans, their computer system does it

*and these computer systems are free, and can mail it FOC too?

 

2) Managing collections of lots of small repayments costs more than managing a smaller number of larger ones? or

 

Again, the computers take it from your bank

*and there are no costs associated with BACs etc?  And none of these firms take payment in cash?  And when the money isn't there?

 

3) Their market will have higher default rates than those serving better risks? and

 

If they did proper credit checks they would have the same default rates as the banks who do use credit scoring.

* yes, and those who currently use them would not be lent to.

 

4) The costs of chasing non-payers - which they absolutely need to do without exception and robustly if people aren't going to take the mickey out of them - will also be massively higher than dealing with low-default client bases?

 

See answer to 3 above.

*and mine.

 

Those costs will have a material impact on the effective APR...  and it won't be worth ANY lender doing unless they'll cover their costs and make a fair margin.

 

Not completely true, the credit card companies manage on a whopping 18.9%

*these deal with long term borrowers, generally good credit, established relationships, etc.... not those who'd be turned down elsewhere.

 

None of that is to say that 5000%+ is reasonable, but it is worth considering the other side of the equation and the fact that if these firms didn't exist the borrowing options available to some people would be distinctly less palatable.

 

I understand that anyone who genuinely can't feed their kids can get a short term loan from the social security office.

*how many of them know that?

 

 

,,,anyway, must do some work!

[Norman Verona]

Matt, of course that's strictly correct. However, if a proper credit score check was made and they turned those with CCJ's and debts everywhere down, they wouldn't have so many debts to chase.

 

I think I read that most applicants have to supply a referee and their bank details. The wording isn't clear to most but they can take the debt from the referees bank. I also read that they only do this when the debt has gone from the original to thousands,

 

 

Anyway, what's the baby's name?

[SootySport]

It was over 7000% last year and some companies were charging 13000%+