OpenWonga

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Wonga in the news

Date article publshed: 27/06/2013 Read original article >

Wonga has been in the news a lot over the past few weeks, following a high-profile increase in our representative APR and the referral of the short-term credit sector to the Competition Commission.

In amongst the debate about the perceived rights and wrongs of Wonga, two opinion pieces from well-respected business journalists stood out as taking a considered view of the business and the APR issue – namely from the BBC’s Robert Peston and Patrick Hosking of the Times.

Robert Peston

In his blog, Robert Peston described our technology as “world class”, our default rate as “remarkably low”, the business as “impressively entrepreneurial” and the service “staggeringly easy to see within seconds how much it will cost you to borrow what you want for the time period that suits you. If only bank charges were so transparent.”

He also commented that our “simple 1% per day interest rate equates to an annual percentage rate of interest a touch shy of 6000%”, and many of the five hundred plus comments on his article predictably referenced our headline number. But while our APR is indeed at that level, it remains a misleading figure.

The sum doesn’t just take our daily interest of 1% and assume an annual loan term, which would mean an APR of 365% for a hypothetical Wonga loan, but also assumes daily compounding of interest (where an ever-growing balance would mean paying interest-on-interest).

The result – 5,853% in our case - bears no relation to the actual interest or cost involved in the real loan example.

Patrick Hosking

Patrick Hosking’s article talks of our transparency in showing the total cost of credit before taking out a loan (“Tap in the numbers. It’s there in black and white. Borrow £100 today for ten days and you have to pay back £116.05 on Sunday week”) and calls APR a “preposterous way to measure the cost of a loan taken out only for a couple of weeks.”

He then goes on to further question the suitability of APR for short-term loans:

“Any short-duration loan of a small amount will carry a similarly huge APR, because the admin costs dwarf the cost of funding. Going overdrawn at any high street bank by a few pennies for a few days triggers a fee that translates into an APR of several million per cent.

Nor does the interest automatically spiral higher. The average Wonga customer borrows for only 16 days and can roll over the debt only three times. The balances of those in difficulties are frozen after 60 days and no additional interest is added from then on. Mainstream credit card companies are far worse in letting customers rack up interest month after month for years.”

Ongoing debate

With a representative APR that makes for sensational reading like ours does, as well as high profile regulatory activity, we understand the attention and scrutiny we get. As always we’re happy to actively encourage and take part in constructive conversations with critics and supporters alike.

Our focus now is on working with the Office of Fair Trading, Financial Conduct Authority and the Competition Commission, to develop better regulation that affords consumers choice and transparency across the entire short-term credit market.

Response by Admin Published: Categories Wonga Annual Percentage Rate (APR) Office of Fair Trading (OFT) Competition Commission

Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk