Home > consumer loans, peer to peer lending > would you knowingly pay 4000% in interest for a loan?

would you knowingly pay 4000% in interest for a loan?

Most of you would probably answer the above question with a resounding ‘NO WAY!’ 4000% does sounds like quite a rip-off interest rate for a loan but you would be very surprised to learn that  over 100,000 people a month in the UK have been paying this level of interest when they sign-up for pay-day loans with new lending site, Wonga https://www.wonga.com/ .The site lends funds to people who do not have enough liquidity to tide them over until they receive their paychecks at the end of the month and require money for funding consumer needs. They say that they process over 100,000 loans a month since they were established. All borrowers need to do is sign-up, provide their details for a credit check , request for a maximum of 400 pounds and within 15 minutes they are able to receive the funds they need in their bank accounts. I am not sure if most borrowers are actually aware of the effective annual rate of interest that they are paying as something tells me that anyone seeing the 4000% interest rate tag would rather call up their mate or family member and borrow money from them instead!! 

Wonga  seems to be very successful and all its lending capital is provided by a venture capital firm that has been backing it since it was established. The CEO of the firm confirms that the reason for their success is that ‘people now realise that they no longer need the services of a retail bank’. Although the interest rates seem quite exploitative, I would say that most borrowers on the site would probably not qualify for loans from a retail bank due to their poor credit history which means that Wonga is probably the only choice they have left.  Watch this space there will definitely be competitors wishing to replicate Wonga’s success in this market sector!

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  1. amy smith
    November 1, 2011 at 3:42 pm

    if you borrow £400 and just pay the £100 interest each month then you would pay £1200 in interest in a year and still owe the £400 you first borrowed, its taking from the poor and lining the pockets of payday loans, wonga, and pay express and this is just a few.i know some one that started off with £400 loan then he took another out to pay the interest and ended up with 8 in all which was taking £760 a month just in interest leaving working just to pay the interest, i think the govenment should close these companies down, then to add to this they text and phone telling them they can have more and so it goes on, everyone should be able to claim unfair charges just like they do with the bank. some of these sharks even phone parents, in this persons case i was able to get a bank loan of £1800 to cover just over £700 short term loans

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