What is Wonga?
Wonga is one of the better known short term cash loans providers in the UK. Although Wonga doesn’t refer to its own product as a ‘payday loan,’ it works in much the same way that payday loans do. You can borrow a small cash sum and repay it up to 40 days later in full.
Wonga is a London based company that’s been operating since 2007. The company has a consumer credit license and is also a member of the Finance and Leasing association, so its operation is certainly above board.
More recently, Wonga has been advertising heavily on TV, playing to the fact that it boasts ‘transparency.’ Wonga has processed literally millions of pounds in short term loans.
How much can you borrow from Wonga?
As a first time customer, you can borrow up to £400.00 from wonga.com. You can borrow this for up to a maximum of 39 days. As a repeat customer though, you can build up your Wonga trust rating (based on how well you make repayments) and ultimately could raise this limit to £1000.00.
How long do you have to repay Wonga loans?
You have a choice when you’re applying for a payday loan through Wonga about how long you want the loan for. You could take it for as little as one day right up to 39 days.
What is the Wonga trust rating?
Wonga’s trust rating is designed to enable the lender to lend responsibly. Existing Wonga customers can build up trust rating (based on ‘thousands’ of factors, according to the company) over time. Certainly, your payment history will come into it – how well you have made repayments on previous Wonga loans. Those with the highest trust ratings can increase the maximum loan amount from Wonga from £400.00 to £1000.00.
What’s the APR on a Wonga Payday Loan?
The representative APR on a Wonga loan is 4214%. What that means in plain English is that if you borrow an amount and do not repay anything for a year, by the end of that year, you would owe 42.14 times the amount you initially borrowed. That is high – incredibly high. But sometimes this does skew people’s perception of what the actual repayments are. That APR on a large loan to be repaid over many years would be ridiculous. But Wonga’s real case scenarios actually illustrate what this APR means on their loans. For example:
- A £100 loan taken for 30 days would mean you repay £136.72
- A £400 Wonga loan taken for 14 days would mean you repay £461.49
- A £50 loan from Wonga repaid in 10 days means you would repay £60.97
Because the loans are paid in weeks rather than years, APR (you could argue) is something of a misleading figure to use in reference to short term cash loans.
Wonga and the US National Debt!
If you’ve been reading up on Wonga then you’ve probably encountered Martin Lewis’ blog post on Moneysavingexpert.com which calculated how long it would take you to amass the equivalent of the US National Debt by borrowing £100 from Wonga. His calculations were correct in stating it would take 7 years to amass a debt of £23.5 trillion by borrowing £100.00 at 4214% APR and not making a single repayment during that time.
Although that illustration is extreme and the vast majority of customers repay their loans in the timeframe, it did highlight the fact that payday loans and short term cash loans of any nature are high cost loans when compared to traditional unsecured loans.
Is a Wonga loan for you?
What Wonga does right is it shows you CLEARLY how much you will have to repay. The company doesn’t try to hide the APR. If you know what the repayment will be, when you will have to repay it and are happy with it and can afford it, then it could potentially be a good solution to a short term cash requirement.
However, if you do have alternatives and can borrow the money at a lower cost, then it could be sensible to do so.