"Wonga. Com"

[jon0844]

Still a lot of interest for the short period of time.

As a percentage perhaps, but who would loan money for that return given the fact that there will be costs involved to process the checking, the issuing of the money and the collection of the money - including dealing with those that don't pay.

These are loans generally made to the highest risk borrowers, so if a lot of the loans are never repaid Wonga.com would very quickly go out of business.

 

[Butts]

I see a new voluntary code of practice has come into effect today for Payday Lenders.

 

[richw]

Or they measure things differently. APR is stupid for a loan you might pay back in a week or two.

The most important thing should be the total cost payable (likewise for longer loans, where APRs can give the ignorant the impression that they're not paying much without working it out properly over the whole term, as well as other admin fees etc).

APR was designed as a way of making comparisons and works to a degree, but it's not perfect for all loans.

I was quoted a loan at 10.9% over 10 years, by Santander for a home improvement product, but when I looked into total amount repayable it was extorianate. Santander wouldnt offer the product over any shorter period.

 

[Eagle]

I was quoted a loan at 10.9% over 10 years, by Santander for a home improvement product, but when I looked into total amount repayable it was extorianate. Santander wouldnt offer the product over any shorter period.

10.9% over 10 years means you'll be paying back almost three times what you borrowed.

 

[richw]

10.9% over 10 years means you'll be paying back almost three times what you borrowed.

think it was only about 2.2 times as much, i found cheaper ways of raising the funds in the end

 

[DaveNewcastle]

. . . . These are loans generally made to the highest risk borrowers, so if a lot of the loans are never repaid Wonga.com would very quickly go out of business.

I can't agree with this assumption.
If it is based on the premise that you've offered, then I'd be interested to learn if you have examined the debt recovery strategy employed by the Company (both in policy and practice) to inform your conclusion.

 

[Butts]

I can't agree with this assumption.
If it is based on the premise that you've offered, then I'd be interested to learn if you have examined the debt recovery strategy employed by the Company (both in policy and practice) to inform your conclusion.

As I mentioned in post 27 on this thread.

 

[richw]

As I've previously mentioned I used wonga on one occasion, due to forgetting a direct debit a day before payday. I repaid on payday and it worked cheaper than the admin fees charged for a failed direct debit.
I would however say they didn't do sufficient checks in my opinion to verify affordability of repayment.
I believe though if used sensibly they aren't a bad thing.

Sent from my HTC Sensation Z710e using Tapatalk 2

 

[DaveNewcastle]

As I mentioned in post 27 on this thread.

I'm sorry that I don't understand your use of language here.
I was asking jonmorris0844 if he had consided the Company's debt collection strategy and its application. I'm none the wiser as to whether he, or indeed you, have done so. The answer to the question would make a significant difference to the way in which opinions could be evaluated.

FWIW My reading of that Company's strategy does not lead to inevitable insolvency.
But it does lead to other exposures to risk which I will certainly not publicise on here. It helps to know if other posters on a subject are aware of the same factual background.

 

[Butts]

How do they recover the money if people default ?

Presumeably a lot of patrons have few assets so a County Court Judgement or Decree would be a waste of time

This is what I was asking and commenting that with the profile of patrons a lot of the normal Debt Collection Measures would not be of any use.

 

[Clip]

But could Wonga et al still be profitable with, say, a 40% APR? That would be similar to those credit cards aimed at people with poor credit.

But if they had a 40%APR then they would only be making £3.33 a month interest. Their costs are probably higher than that so they would go broke in a month or three.

This is why the headline APR rate - which all loan companies have to provide on ads - is so high. The FSA make them show it.

Take my bank.

If I was to go overdrawn for some reason by £100 a week before I was to get paid* I would get charged £15 for going over drawn. I would then get charged £5 PER DAY until I was back in black. This then costs me £50!!!

I go to a payday loan company and borrow that £100 so I dont go overdrawn for 7 days and it costs me £25.


Now Ill let you do the sums and work out who is actually robbing who and who is the better value.

 

[Eagle]

If I was to go overdrawn for some reason by £100 a week before I was to get paid* I would get charged £15 for going over drawn. I would then get charged £5 PER DAY until I was back in black. This then costs me £50!!!

I go to a payday loan company and borrow that £100 so I dont go overdrawn for 7 days and it costs me £25.


Now Ill let you do the sums and work out who is actually robbing who and who is the better value.

Although if you replace "one week" with "one year"...

You'd pay your bank £1840. You'd pay the loan company* £4214.

And over ten years, your bank would get £18,265 whereas the loan company would get £1,765,815,451,471,573,632.67. (Really.)

*using Wonga.com's APR of 4214%.

 

[Clip]

Although if you replace "one week" with "one year"...

You'd pay your bank £1840. You'd pay the loan company* £4214.

And over ten years, your bank would get £18,265 whereas the loan company would get £1,765,815,451,471,573,632.67. (Really.)

*using Wonga.com's APR of 4214%.

Yes, I understand that. But I would not be paying it back over a year. I would,however be using it as it would be intended to use - for 1 week.


This is why they have the tag of 'payday loans' not borrow some money over a year loan.

 

[radamfi]

How many people taking out these loans could get a credit card that has an interest free period for purchases? And how many people taking out these loans actually already have a credit card with an interest free period?

 

[BlythPower]

I did note that in the graphic, they state the annual rate (i.e. the APR) in the UK - but don't state on what basis they've calculated the rates for other countries. In addition, any fees charged get included in the APR, as well as interest.[*] But they don't state if any fees are included in the calculations for other countries.

In summary; the graphic is just a pretty map with some numbers on it.


[*] This is why the 'payday' loans have such a high APR - because if you're paying a £10 or £20 fee for a short-term loan, then when it's annualised, the APR looks ridiculous. This is also why APR isn;t a suitable measure for short-term loans.

The point of the map is not the figures themselves, but the fact that so many countries have limits on the interest that can be charged whilst the UK has no limit at all.

 

[jon0844]

But the figures are meaningless when you're looking at a short loan of a week - which has a ridiculous figure.

I am sure other countries get around any caps by imposing more administrative charges and a lower rate of interest. Same result, but you might have a charge on applying and having your loan approved, a charge to transfer the money to you, and to close the account - or whatever. I doubt that nobody else is offering similar short-term loans, and I don't believe for one second that any other country has lenders giving money to high risk borrowers for the sake of 40 or 50p profit.

The fact is, these payday loans are perfectly fine if they're used properly. Used by people who know they will have the money in a few days and just need an advance. Not those who can't get a proper loan and see this as a way of getting money quick, when there's no likelihood of the money needed to pay it back coming in on time.

Getting a credit card with a period of no interest is fine if someone could get that, borrow the money, pay it back (with no interest) and then tear up the card. But virtually nobody will do that, and will then begin to use the card. Naturally, the card issuer will seek to increase the limit from time to time (even if the card isn't being used) to tempt people.

 

[transmanche]

The point of the map is not the figures themselves, but the fact that so many countries have limits on the interest that can be charged whilst the UK has no limit at all.

You don''t meed a pretty map to explain that.

Let's say you calculated the figures on a like-for-like basis and found that the maximum typical APR in Germany was 5,000%. A limit is irrelevant if you're not comparing like-with-like.

 

[DarloRich]

I will ask again - how many of you have used these services? I have.

The interest rate is a red herring for most people. It is quite clear what you pay and when. The problem comes IF you do not repay on the agreed terms. If you borrow a couple of hundred quid for a month the interest rate isn’t 40000%. If you use the service as an advance on your wages and know you can repay there will be no problems. You pay a reasonable premium for the service in that case. The issue is with those who borrow the money and have no real potential to repay the money they have borrowed.

Please, before the holier/better than thou types start up, you never know when life will come along and kick you, hard & repeatedly in the balls. You may find yourself needing these services one day and being thankful that such services exist. You may find that the avenues to fiscal management that you take for granted rapidly disappear leaving you with few options.

I would prefer that people used these companies rather than loan sharks (or door step lenders) as they seem to be called these days. They really are scum.

 

[radamfi]

Getting a credit card with a period of no interest is fine if someone could get that, borrow the money, pay it back (with no interest) and then tear up the card. But virtually nobody will do that, and will then begin to use the card. Naturally, the card issuer will seek to increase the limit from time to time (even if the card isn't being used) to tempt people.

When you say 'nobody' are you only talking about potential customers of Wonga, or a large proportion of the general public? Personally, I only use credit cards as a way of getting cashback and not as a means of borrowing. Not everyone yields to temptation.

I think the main issue is to educate the general public that borrowing costs money. If you look at any Dutch website lending money there is a banner saying 'Let op! Geld lenen kost geld' (Warning! Borrowing money costs money) e.g.

http://www.santander.nl/leningen/persoonlijke-lening/kenmerken

 

[jon0844]

I was talking about people who opt to get a credit card, as against a loan for the actual money they need - without having a card that is paid off and sitting in a wallet/purse with 'free money' on it - along with the occasional limit increase or other enticing offers.

Credit card companies have a number of tricks (and by that I don't mean anything underhand or illegal) to try and get people to use their cards, as they're not in the business of issuing a card with zero interest for xx months and then having people stop using them thereafter, or indeed just paying off the balance in full every month.

I too have been able to pay off the balance on my card every month, using it for the convenience (and security) over a debit card or carrying cash. But, I am sure that more people than not end up using the card a little bit more here and there, and eventually start to pay a little less - and carry over, with interest, some of the balance.

We do have various warnings here too, but I think people either don't fully appreciate the commitment, or seem to convince themselves that they'll be able to afford to pay a debt tomorrow when they can't today, without asking themselves HOW they will do that (such as how the money they earn tomorrow can pay off debts when they need to still pay current bills, eat etc.)