Wonga Makes Money-strapped Consumers Currency As Loans Rise Nearly 300% Last Year


Controversial payday lender Wonga makes money-strapped consumers’ currency as loan numbers soar nearly 300% last year

  • The payday lender today revealed that revenue has climbed 225% in the past year
  • Faced with accusations that it targets financially vulnerable people, it approved 2.5 million loans in 2011
  • The additional business saw the lender generate revenue of £ 184.7million

Cash: But at what cost? Typical APR on Wonga Loans exceeds 4000%

Profits at payday loan company Wonga have almost quadrupled to £ 45.8million as it capitalizes on the desperation caused by the soaring cost of living.

It offers short-term, high-interest loans to people who run out of money to buy essentials such as food or their commute to work.

Its own website cites 4,200% as an example of the annual percentage interest rate (APR) charged on a typical loan.

Payday loan companies thrive as unemployment rises, prices rise and salary increases are capped.

They insist that they are providing a valuable service by providing quick access to money to help people until they are paid.

But MPs and consumer groups accuse them of being “legal usurers” because of their high charges and their sometimes brutal collection tactics.

The Office of Fair Trading accused Wonga in particular of using aggressive and threatening tactics with distressed borrowers.

Despite this, its loan applications and profits are skyrocketing.

The total number of loans granted quadrupled to nearly 2.5million in 2011 after it started accepting applications by mobile phone, pushing profits from £ 12.4million to £ 45.8million.

Wonga offers an automated online and smartphone loan service for existing borrowers, who can get £ 1,000 for 30 days. In addition to the interest charges, there are also separate transition charges.

The example he gives on his website is that of a loan of £ 207 to be repaid after 20 days. Interest of £ 41.92 plus charges of £ 5.50 adds up to £ 254.42. This APR on this loan would be 4.214 percent.

In May, the OFT warned Wonga to improve its debt collection practices after complaints that it was indeed trying to scare people who did not pay on time.

Some were told that they could be guilty of fraud and thus risked being reported to the police. Wonga disputed the OFT’s accusations and said he would appeal.

Wonga: The lender says fraud is only a small percentage of loans, but This is Money has seen repeated cases of scammers go through.

Large company: Wonga today revealed that its turnover has climbed 225% in the past year

Hard times: Unemployment levels were at their highest for 16 years at the end of last year

Hard times: Unemployment levels were at their highest for 16 years at the end of last year

Wonga attributes her performance to new technology that allows her to make real-time loan decisions, and says she still rejects the majority of new loan applicants.

He says his average loan is around £ 160, with interest of around 1% per day.

Yesterday, co-founder and managing director Errol Damelin said his success reflected a record level of customer satisfaction and a tenfold increase in the volume of loans taken by mobile phone.
An iPhone application is downloaded by almost 1,000 people per day.

Mr. Damelin said: “We recorded another year of growth in 2011 by continuing to use our technology to meet people’s cash flow needs in increasingly personalized ways.”

“Allowing people to borrow on their terms, without hidden traps, has also enabled us to continue to record very high customer satisfaction rates, with word-of-mouth continuing to contribute to our growth. “

Damelin says Wonga is an iTunes for the financial world, “a platform for the future of financial services – the digital revolution has not yet started in financial services.”

Using the latest technology and customer data will be the key to success, he said – “to make objective and unbiased decisions”.

Errol Damelin de Wonga with his partner Julie Blane: he compares his company to companies like Google, Amazon, PayPal and Netflix

Errol Damelin de Wonga with his partner Julie Blane: he compares his company to companies like Google, Amazon, PayPal and Netflix

He said Wonga has now offered its short-term loans to over 1 million people since its launch in 2007, with 6 million total loans.

But who’s looking for? in May found that one in five payday borrowers had not been able to repay their loan on time – in which case unusually high interest rates can appear – while a third of people said they had bigger financial problems because of taking out a payday loan.

Una Farrell, of the Consumer Credit Counseling Service debt charity, said, “Everyone needs to fully understand how payday loans like Wonga’s work.

“It is crucial that people know that payday loans can quickly escalate into unmanageable debt if not managed carefully and that their ease of access does not always promote the wise use of credit.”

Wonga collects money through “Continuing Payment Authorities” (CPA), which are set up when customers borrow money from the lender. This means that if a customer misses a payment, Wonga can “dip” into their account and collect all the money they are owed. The practice has been criticized in the past for not allowing people in debt to pay priority payments, such as their mortgage or rent, first.

Earlier this year, the group branched out, offering business loans ranging from £ 3,000 to £ 10,000 in 15 minutes.

“Companies were asking for a 24/7 solution to solve relatively small, relatively short-term cash flow issues,” Damelin said.

It has also been reported that the London-based company is considering an IPO in the United States that could value the company at over £ 1 billion.

Damelin also recently said that Wonga will consider offering savings and mortgage products at some point: “You will absolutely see Wonga in areas where traditional players in financial services are not delivering good value. We will do other things like payments and savings. We will probably do mortgages at some point.

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