It’s very possible to come out richer using payday loans. Just ask Wonga.
Ah Wonga. The familiar face of payday lending that we all know and loathe probably doesn’t care whether it is loved or hated, as founder Errol Damelin waltzes off to his bank with Wonga’s threefold increase in earnings.
The short-term loan provider, whose indicative APR on personal loans is listed as 4,214% quadrupled the number of loans made in 2011 to almost 2.5m and increased its turnover to £185m. Nice work if you can get it.
And it appears Wonga can get the business, extortionate APR aside, after all, if you listen to Mr Damelin you would be in no doubt that he is, in fact, providing a service and that pesky APR percentages are entirely irrelevant.
Part of the increase in loans could be down to the fact that, even customers who may not have previously considered taking out a payday loan may have felt forced down this route owing to belt-tightening in the high street banks. Lack of access to regular credit is always going to feed the bottom feeding market.
Of course, this may not be the only reason Wonga is filling wallets. Criticised for advertising (without an APR) on the tube over Chrsitmas and New Year, which could be construed as taking advantage of the slightly inebriated, perhaps it is the ease of use that attracts customers. Wonga guarantees borrowers will receive their money within 15 minutes of approval, which is certainly accessible, but with 10 times more customers taking out loans via their mobile phones in 2011 and nearly 1,000 people downloading a Wonga iPhone app every day, is the access to easy credit just a bit too easy? Particularly for people who are likely to get themselves in debt and possibly don’t know better?
And Wonga’s reign is not destined to end with the downtrodden individual- the company launched a credit service for small businesses earlier this year, again offering a service “to fill a gap in the market resulting from a lack of lending by mainstream banks.”
Wonga small business loans range from £3,000 – £10,000 for periods from one week to 52 weeks. "Very often for small businesses that is all that is needed but they need it quickly. Most small businesses go to the wall because of cash flow problems not P&L problems," Damelin told The Guardian. Of course, not being personal lending, Wonga is not required to show the APR on business loans, and this information is not volunteered anywhere on the site before application. Our best estimates put the the APR at something over 30%, double the rate of some credit cards that could be a better solution for genuine short-term business cashflow problems.
We wonder how many businesses, or people, will go to the wall next year because they can’t meet the interest charges…