Anorak News | If Wonga doesn’t make massive profits then why are their interest rates so high?

If Wonga doesn’t make massive profits then why are their interest rates so high?

by | 6th, September 2013

WE’VE the news about how much profit Wonga made last year:

One million hard-pressed borrowers prepared to pay interest at up to 5,853% have propelled into the league of Britain’s biggest lenders after the controversial payday loan company lent as much money last year as Britain’s biggest building society advanced in personal loans.

The Archbishop of Canterbury’s promise to “compete Wonga out of existence” has failed to dent the group’s frenetic expansion, it emerged on Tuesday, as Wonga said its profits had leapt by more than a third to £62.5m, with the number of loans granted growing even faster.

During 2012 it handed out nearly four million loans, worth a total of £1.2bn, to one million customers in Britain, matching the amount Nationwide granted in personal loans.

And it’s really not all that much money, is it?

Well, OK, £62.5 million is a reasonable sum of money, yes. But on lending of £1.2 billion it’s not exactly a huge amount, is it? It comes out to 5.3% of the amount lent out.

Which is, if we think about it, a very long way indeed from that 5,853% that The Guardian is quoting. So what in buggery is happening?

Here’s a clue:

Wonga wrote off £96m last year because it deemed the amount uncollectable. That’s £1.85m per week that Wonga is effectively giving away to poor people.

Nearly 10% of all loans were written off. That has to be paid for from the money that those who do pay their interest hand over. Plus, of course, if you’re lending small amounts of money for short periods of time, well, this is just expensive when calculated as a percentage of the amount being lent.

But here’s the bottom line. If Wonga were making vast profits then it would be, well, making vast profits. It isn’t, so it’s not.

Posted: 6th, September 2013 | In: Money Comments (2) | TrackBack | Permalink