Buy now, pay later? Wonga's new offering...
Not content with targeting the inebriated and the students among us, Wonga’s latest offering in a search for unwitted unwitting consumers is a retail Buy Now Pay Later scheme, imaginatively entitled PayLater.
Currently being piloted with one online retailer, The Cotswold Company, this move into longer term loans is a sign that Wonga don’t wish to remain as purely one of the bottom-feeders, but have their sights set on loftier targets, like those who have to buy their own furniture. The maximum loan length for a payday loan is 45 days, but the new scheme offers loans for up to three months at 7% interest. No that’s not 7% interest per annum, that’s 7% per three-month period. Still, the APR of 27.7% does compare favourably with the 4,214% APR levied on Wonga’s payday loans.
But is this a viable option for consumers? Furniture stores are famous for offering years of free credit to buy things, so why should people think about taking out credit that costs? Well, much like the payday loan industry, interest-free credit requires a credit check, and if you don’t make the grade, you won’t get the credit.
So perhaps we would be better off comparing PayLater with credit cards then? The Wonga PayLater fee is paid when the order is placed, so a purchase costing £100 would cost consumers £7 upfront, plus three repayments of £33.33. Total cost of credit is £7.
However, Andrew Hagger of Moneycomms.co.uk said the new service did not compare well with credit cards. "If you were to pay for £100 worth of goods on a credit card with a typical APR of 18% and pay off £33.33 a month over three months, you'd end up paying about £3 in interest," he explained, making Wonga more than twice as expensive. Funny that.
In fact, given that interest rates for personal loans are also at an all-time low, it could be that the only thing Wonga’s PayLater is cheaper than, is, um, Wonga. A £100 payday loan for 45 days (half as long, but the maximum permissible) would cost £52.32 in interest.
Wonga insist this is an innovation to meet a genuine need, and even offer to waive the fee if shoppers cancel an order within 14 days. Good job Wonga are such nice sorts. Either that, or they are simply complying with the distance-selling regulations and trying to make it sound like a perk of the deal…
So is this an essential service being offered to those who absolutely positively need some furniture but don’t have the credit record, or just another way for Wonga to make money? What do you think….