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Anorak | Wonga puts its lending rate up to 5,853 per cent

Wonga puts its lending rate up to 5,853 per cent

by | 24th, June 2013

The logo of payday loan company Wonga is seen reflected in a woman's eye, as Wonga has entered the online payment industry by offering shoppers the option of borrowing cash to fund their web purchases.

NOT that it actually means very much but it’ll give some campaigners something else to shout about :

Payday loan giant Wonga has increased the interest rate it uses to illustrate the cost of borrowing to 5,853 per cent – a rise of 1,600 per cent.

Sounds appalling, eh?

Wonga used to give the example of a £207 loan over 20 days, with interest and charges of £47.42 and an APR of 4,214 per cent.

But it now uses a new example of someone borrowing a smaller sum of £150 for 18 days, with interest and charges of £33.49 and an APR of 5,853 per cent.

The problem with this is that its an inevitable part of how an APR is calculated.
Start from the beginning: you lend money to someone then you’ve got to charge them interest. Some won’t pay it back, there’s a time value to money and so on. But you’ve also got to charge them an arrangement fee. You’ve got to have an office (even if it’s just a virtual one on the internet), staff and all the rest of it. An APR adds in that fee and that interest and then scales it up to an annual cost (the annual being the A in APR).
But because you’re borrowing a

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Posted: 24th, June 2013 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink

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