Have You Been Wonga’d?13. January 2012 by Herman Brodie
I read another scathing editorial about the payday lender, Wonga, this morning. Not content with fleecing low-income borrowers with annual interest rates on short-term loans that reach 4200 percent, seethed the journalist, the shameless company is now encouraging students to borrow their money in order not to miss out on cheap holiday deals.
How can I disagree? It is unconscionable to charge such high rates of interest on loans when market rates of interest are at historical lows. At least, that is what I thought until I visited Wonga’s website. On the homepage, the lender asks two simple questions: How much do you want to borrow and for how long? The user responds by shifting the two sliding scales between £1 and £400, and between one and 30 days. I shifted both to the maximum and was horrified to discover that the interest and fees amounted to £125, a total repayment at the end of the 30-day period of £525. Then I adjusted the scales to a more modest £120 loan for just one day. It was only when I saw the interest and fees at less than £7, I realised that I too had been recently wonga’d.
This was almost exactly the amount in fees that I paid to withdraw cash from a private ATM in the middle of nowhere. The ‘loan’ in this case was from the provider of the machine, who probably needed 24 hours to recover the cash from my bank. However, my opportunity costs were even higher. I could, for example, have jumped in the car and gone in search of an ATM from my own bank. It would not have taken more than 30 minutes. There was no pressing imperative that would have resulted in even higher costs, but I just couldn’t be bothered. So the real cost of my impatience was not just 4200 percent p.a. for 24 hours, but over 200 000 percent p.a. for half an hour. Compared to what we consumers will sometimes do to ourselves when it comes to money, even Wonga can start to look like an angel.