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MSE News: Wonga responds to US debt comparison jibes

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  • Borrowing money every month doesn't have any relevance to their ability to pay the money back. If they clear the bill within the month and borrow more, then they obviously are able to pay it back.

    Of course it has relevance .... the OFT regulation I stated says creditors should make reasonable assessments on ability to make repayments in a sustainable manner. Most lenders (check their websites) acknowledge publicly that payday loans are intended for short term use and not to cover long term financial needs. Somebody borrowing from the same company every month, even more so when they are increasing each month, are showing the tell tale signs of unsustainable borrowing .... even if the amount is not increasing, the lenders should be asking questions instead of blindly accepting loan applications as they are doing. At the very least this should / could include lowering the amount that can be borrowed, and certainly not raising it....
  • Herzlos
    Herzlos Posts: 14,753 Forumite
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    I don't believe that this is how APR works.
    Because in my example I am not going overdrawn for a year, I'm going overdrawn for one day. If the £1 charge was levied after a year then I think you would be right, but it's not.
    I believe APR is equivalent to saying "what if interest was left to compound over the year?". In this instance we're paying the charge so there is no compounding, but the APR doesn't care about that.
    So my point was because of just one day the debt is doubling. So from an APR point of view the debt would double every day for a year, leading to my crazy percentage.

    But I've realised that I wasn't right.
    You don't pay the fee straight away - it's on average a month and a half afterwards (<link removed because I'm a new user>).
    So from an APR point of view the balance is doubling every 1.5 months. So over a year it would double 8 times. That gives an APR of 25,500%.

    But I'm not convinced that that is right, either.

    Does anyone know how you work it out?

    I'm not entirely sure how you work it out for a fixed rate, but I think we can safely agree that the APR, whatever it is, can potentially be astronomical, and certainly far above pay day lenders.
    Borrowing money every month doesn't have any relevance to their ability to pay the money back. If they clear the bill within the month and borrow more, then they obviously are able to pay it back.

    Of course it has relevance .... the OFT regulation I stated says creditors should make reasonable assessments on ability to make repayments in a sustainable manner. Most lenders (check their websites) acknowledge publicly that payday loans are intended for short term use and not to cover long term financial needs. Somebody borrowing from the same company every month, even more so when they are increasing each month, are showing the tell tale signs of unsustainable borrowing .... even if the amount is not increasing, the lenders should be asking questions instead of blindly accepting loan applications as they are doing. At the very least this should / could include lowering the amount that can be borrowed, and certainly not raising it....

    Yes if you are borrowing money each month to cover the last months borrowing + interest then it's unsustainable. But if you borrow for a couple of days a month, just before pay day, and clear it, then it is sustainable, as long as you can keep up the payments. It's no different from having a stead credit card balance. Or should credit cards refuse to loan to people who can't clear their balances in full?

    I'm in agreement that having perpetual debt isn't wise, as it'll cost a fortune in the long run, but sometimes it's worth it to maintain liquidity for a while. If the debt's getting no worse, and it's affordable, then it's not a problem, even if it's unwise.

    Of course suggesting that people who are struggling take out a new loan to clear an old loan is disgusting, and they should be trying to detect customers who are displaying problem patterns, but that doesn't mean regular borrowing is inherently bad.
  • Mary_Hartnell
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    Somebody borrowing from the same company every month, even more so when they are increasing each month, are showing the tell tale signs of unsustainable borrowing .... even if the amount is not increasing, the lenders should be asking questions instead of blindly accepting loan applications as they are doing. At the very least this should / could include lowering the amount that can be borrowed, and certainly not raising it....

    We all have free will.
    These borrowers are usually credit junkies. They just cannot say 'no' to themselves (or perhaps to their partners/kids).
    Like any addiction its effect on the poor is more serious on a personal basis. Just as with alcohol, the rich can get away with it for a lot longer.
    This recommendation is just more Nanny State, tax the behaviour if you must, but try to prevent it and you have as much hope of success as with the other more chemical induced addictions.
  • JimmyTheWig
    JimmyTheWig Posts: 12,199 Forumite
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    For example, go overdrawn by £1 for 1 day with Halifax and get charged £1.
    I was wrong about this.
    Looking through the details last night and you don't get charged for an overdraft of less than £300. Makes it in the region of 210%, I think. Much more reasonable. But still very very high for a reputable player in the market.
  • iris1957
    iris1957 Posts: 22 Forumite
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    hi to anyone out there who can explain or know what i would pay back to wonga if i rolled over £1274 for 1 month . i normally always pay back on payday but considering rolling over.for once, i emailed wonga to ask them but they never got bsck to me!
  • robbii
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    I was reading last week of people who tried to pay off their loans but were told by Wonga to just pay off the interest and leave the amount that was loaned.
  • Chrissie72
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    robbii wrote: »
    I was reading last week of people who tried to pay off their loans but were told by Wonga to just pay off the interest and leave the amount that was loaned.

    Why? .........................
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