Wonga: how APR has ruffled some headless chicken feathers

By in banking, management, products, Uncategorized on 12 October 2011

You know, no matter how much you explain, some people never manage to get it.
Take Wonga and the thorny question of APR, for example.

Now I’m not going into compound interest’s mysteries and related technobabble. Let’s just look at the reality of how life is and take it from there.

Before the crash, we trusted banks and most of us funded our lifestyles with credit. Nowadays, most people are recovering from first-degree finger burns and avoid credit like gasoline on bonfire night.

But life still bites. You still get unexpected bills that threaten the next meal’s arrival. And if that happens – and you’re smart – you’ll appreciate Wonga…

Credit for real people

My bank account’s often under threat, bank notes to me, an endangered species. Its usually a close-run sprint between my fluidity and end of the month.

Take my car service bought this month. It was meant to cost £235. It cost me £575. Then a big banking client was supposed to pay an invoice I sent them and didn’t. Well, they did, but into someone else’s account – but that’s another story.

But hey, I got by as you do, but just occasionally, people like me don’t.

I don’t mean those who just can’t manage money, I mean those who usually can. This is a tale of real life. Those who choose not to have credit cards, or overdrafts. People who had the gold, platinum and black cards and got rid.

For them, a sudden nasty bill means bank charges for unpaid standing orders. And that bites hard. Very hard. No one talks APR then.

Tales of the unexpected

Here’s what could have happened. Let’s take that jumbo-cost car service of mine. For many, paying it would have meant that something else simply didn’t get paid. Miss just three direct debits and your bank could charge you £90.

Now imagine you’d borrowed £200 from Wonga to help with that unexpected bill. Wonga would have charged you £25 and all your commitments would be met.

Sure, you’d still have to pay your loan back, but without Wonga you find yourself paying your regular bills twice that next month – along with bank penalty fees for the unpaid direct debits.

Wonga – the time machine

Wonga would have shielded you from the bank charges you incurred from not meeting all your direct debits, which would have added to your plight even more. What you did was cleverly shift time in your favour – and as ever, time is money.

So Without Wonga your bills go unpaid and its costs you £90 for not paying them. With Wonga, your bills get paid and say, a £200, 10 day loan costs about £25. Now, someone tell me what APR has to do with that?

Credit only where its due

Just remember, Wonga doesn’t lend to poor risks – it lends to safe, real people. People with good credit who just every now and then get caught out.

Its a financial fire service. Something you may not ever need but when you do, you’re glad it was there. It beats throwing gasoline on your fire like your bank will.

And about that APR? Get over yourself. And get those feathers off my lawn.