Sunny - 1971 APR

[Rooter]

I don't understand why they have to charge the interest rates that they do. Admin and setup charges are additional so don't need to be covered by the interest. Is money that expensive for likes of Wonga to get hold of? Or knowing the attractiveness to many of the relatively low cost of the interest accrued over the period of a very short term loan - are they just charging whatever they want to make a load of money when folk default.

I would say (not to defend the payday loan companies, but to add a balance) that the typical payday loan is of a low value (in the realms of lending) maximum i have seen advertised is about £1000, just looked on Wonga and from their home page its £400...

So if they were to offer "bank" rates, lets say 11%, there is no profit as its such a short term, the what looks on first view as extortionate APR rates in money terms are not huge.

For example from Wonga:

Borrow £400 for 2 weeks, will cost you £62.27 in interest and fees. With the huge risk of them having to chase it and send bailiffs etc, i personally think its a fair amount of profit to be made.

And taken from their website, so its pretty clear,,,,

Our loans are intended for occasional use only

You shouldn’t use our service to manage existing debt or if you’re already feeling the strain financially

Our loans must be repaid within weeks

Our service isn’t designed for long term borrowing and isn’t always the cheapest option

 

[Hacker Khan]

I don't understand why they have to charge the interest rates that they do. Admin and setup charges are additional so don't need to be covered by the interest. Is money that expensive for likes of Wonga to get hold of? Or knowing the attractiveness to many of the relatively low cost of the interest accrued over the period of a very short term loan - are they just charging whatever they want to make a load of money when folk default.

I'm guessing some of it may be due to the very risky nature of the loans. Essentially they are loaning to people with very poor credit ratings and at times, not the most financially astute people. So they would possibly say they need to charge such high rates to make a profit once the defaulters have defaulted.

But I imagine the real reason is because they can.

 

[SwingsitlikeHogan]

I'm guessing some of it may be due to the very risky nature of the loans. Essentially they are loaning to people with very poor credit ratings and at times, not the most financially astute people. So they would possibly say they need to charge such high rates to make a profit once the defaulters have defaulted.

But I imagine the real reason is because they can.

And this is it I think - their market is primarily those least well equipped to determine if a pay day loan is for them and within their means to pay off - and those are often the same people most likely to need such a loan and most likely to default.

A bit like being the seller of booze to alcoholics - the first pint will cost you 50p - but we'll charge you £5 for every subsequent pint. And because we are a caring and responsible seller of booze, we tell you that it's not good to drink more than 5 pints in a session - so after 5 pints the price per pint goes up to £10 - to discourage you from keeping on drinking.

 

[Pin-seeker]

If people are stupid enough to use these companies then more fool them.

 

[6inchcup]

yes it was sunny in april 1971,cant get the link between that and people who by bad luck or desperation have to use a legal version of back st loan shark.

 

[SwingsitlikeHogan]

If people are stupid enough to use these companies then more fool them.

Desperate is not stupid

 

[Rooter]

Desperate is not stupid

Agree, however desperation can force actions a non desperate person might not take. Its not stupidity, its clouded judgement looking for a quick fix.

 

[SwingsitlikeHogan]

Agree, however desperation can force actions a non desperate person might not take. Its not stupidity, its clouded judgement looking for a quick fix.

Indeed - and when very stressed we can all seek that quick fix and make a wrong call. Most of us are fortunate in that that wrong call doesn't have us falling into the hands of predatory companies like the Pay Day Loaners