Payday loan giant Wonga has increased the interest rate it uses to illustrate the cost of borrowing to 5,853 per cent – a rise of 1,600 per cent. The move has triggered more calls for tighter regulation of an industry that cashes in on hard-up borrowers.
Most customers of payday loan firms only take out small amounts over a short period to tide them over until they get their salary.
But lenders are required by law to give a representative annual percentage rate of interest (APR), setting out what the loan would cost over a year, so customers can make comparisons with other firms easily to find the cheapest deal.
Wonga used to give the example of a £207 loan over 20 days, with interest and charges of £47.42 and an APR of 4,214 per cent.
But it now uses a new example of someone borrowing a smaller sum of £150 for 18 days, with interest and charges of £33.49 and an APR of 5,853 per cent.
Wonga has not actually increased its charges or interest rates, but says it has voluntarily changed the loan example it uses on its website as a better reflection of how customers borrow.
The firm argues that the APR calculation, which makes assumptions about borrowing money over a full year, is not the best way to illustrate the cost of its loans to customers.
A spokesman said: ‘We made the change as the way our customers are using the service has changed.
On its website, it tells customers: ‘While shorter Wonga loans cost less in real terms for our customers, this trend means a bigger representative APR. It’s crazy but true.’
Wonga and the 49 other biggest payday loan firms have been put on notice by the Office of Fair Trading (OFT) to improve the way they agree loans, provide information to customers and chase debts.
Some customers have been given loans without proper checks that they are earning and can afford repayments.
Others have been allowed to roll over short-term loans several times, pushing interest charges to punishing levels.
Several firms have used heavy-handed tactics to chase debts.
Earlier this year, it emerged that a father killed himself after being harassed by payday loan firms demanding repayments.
Anthony Breeze, 36, from Bolton, burned to death after dousing himself in petrol and setting himself alight.
A Citizens Advice study found the firms are fuelling debt and misery by lending to the vulnerable, including people who are drunk, the under-18s and the mentally ill.
Its chief executive, Gillian Guy, said: ‘High interest rates are just one of the problems people face when taking out payday loans – hefty charges, rollovers and having their bank accounts drained, leaving them in serious financial hardship and struggling to repay money they’ve borrowed. His band is looking better...
Stand and deliver
Stand and deliver
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
Re: Stand and deliver
A single mother-of-two who lives on benefits used payouts from eight payday loan companies so her children could have a special Christmas.
Unemployed Katie McGill borrowed £1,690 from the controversial firms and will have start paying back £3,000 from January 2.
The 28-year-old from Devizes, Wiltshire, took out the loans of between £80 and £380 to buy 'hundreds' of presents for her children, but now fears she will not be able to provide for them when she tries to cover the repayments.
She bought a bike, a TV and a DVD player for both Mya-Renee, three, and Calvin, eight, and took them for a meal.
The jobless mother said: 'There were hundreds of presents under the tree. Their gran passed away this year so it was nice to be able to treat them.
'They got loads of computer games for their Xbox, they got a new TV and DVD player each, new bikes and loads more.'
She will try and make the repayments with the £70 a week she has leftover after she has covered other bills.
But she is worried she will be unable to buy basic necessities for her children and has blamed Wonga for getting her into 'one big, messy, circle'.
'When I start paying back the loans I won't be able to pay the bills or buy food and drink and basic necessities.
'Then I'll start taking out more loans and it will just be one big, messy, circle.'
A spokesman for Wonga said it is not possible to take out multiple Wonga loans at once - you have to pay off a Wonga loan in full before being eligible to take out another.
“If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and weren't so lazy.”
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oldr_n_wsr
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Re: Stand and deliver
It's always someone/thing elses fault.and has blamed Wonga for getting her into 'one big, messy, circle'.
Personal responsibity is dead.
Re: Stand and deliver
Some can't tell the difference between right and wonga.
Yrs,
Rubato
Yrs,
Rubato
Re: Stand and deliver
Oh I don't know...Fucking idiot.
It's not like she's going to be on the hook for the money....
Seems to me the greatest idiocy here is in the system that allows this to happen...
I'm a little confused here...
I thought that the whole concept behind a "payday loan" was based on the idea that you had to at least be "employed" and therefore, have a "payday"...Unemployed Katie McGill
Is the "payday loan" system in the UK set up in such a way that you can use government benefits as proof of "pay" and take out loans against them at predatory rates?
If so, then it seems to me there are bigger idiots involved here than Ms. McGill....
I'm not making any excuses for the whole "payday loan" concept, with it's usurious interest rates, preying on the most financially vulnerable and desperate, (I've condemned this at length) but if in addition, in the UK you can use government benefit payments (which I don't believe is the case in the US) to secure these loan shark arrangements, that's just nuts...
Re: Stand and deliver
To the best of my knowledge Jim, these are unsecured loans. The call them 'payday' loans purely as a hook.
Why is it that when Miley Cyrus gets naked and licks a hammer it's 'art' and 'edgy' but when I do it I'm 'drunk' and 'banned from the hardware store'?
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MajGenl.Meade
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Re: Stand and deliver
She bought a bike, a TV and a DVD player for both Mya-Renee, three, and Calvin, eight
But she is worried she will be unable to buy basic necessities for her children
Well she's obviously taken care of the bare necessities already - so what's the problem?
She doesn't have the concept does she? It will be over long before it gets big and messy.'Then I'll start taking out more loans and it will just be one big, messy, circle.'
Suspiciously posed and useful photograph accompanying this article? Publicity stunt?
Hmmm....
For Christianity, by identifying truth with faith, must teach-and, properly understood, does teach-that any interference with the truth is immoral. A Christian with faith has nothing to fear from the facts