Credit card sting
July 31st, 2008 |
Leading financial website thisismoney.co.uk reports that many credit cards have bumped up their interest in time for the holiday season. Quel surprise! Not only are standard interest rates on the up, but charges for using cards abroad and withdrawing cash from the hole-in-the-wall have also taken a sneaky hike. Here’s an extract from the article: |
The increases are a hammer blow to families heading off on summer holidays, which generate the biggest card bills of the year on items like hotels, food and car hire.
Britons are expected to spend £22bn on credit cards during July and August. With 13.8m customers regularly failing to pay off their balances each month, the rate increases will bring a cash bonanza for the card companies. Almost one in three customers have faced a rate rise in the past year.
Credit cards have their uses of course, but it’s the fact that 13.8m customers regularly fail to pay off their balance, plus the frequency of interest rate changes, which can sting. It’s essential to fully understand the terms of any credit offer before committing, but the trouble with credit cards is that terms can then change during the life of your card and the banks want to keep your balance running indefinitely.
They can provide cheap credit, but also hidden charges, changing costs and the risk of a spiralling balance. A small, short term loan from Wonga on the other hand may cost more in some instances, but the total amount repayable is always explained upfront, with total clarity. The interest rate won’t ever change during your loan and you repay it within a few days or weeks, depending how long you want to borrow the cash for.
We make money when you settle your loan and clear your short-term debt, not by continually extending a growing line of credit and bumping up the fees every once in a while!
July 31st, 2008 at 4:16 pm
I’ve been reading along for a while now. I just wanted to drop you a comment to say keep up the good work.
August 7th, 2008 at 10:13 pm
I don’t know how a company that charges an APR of 2334% can criticise credit cards with a typical APR normally around 16.9%. APR is a tool for comparing the cost of credit from different providers and products. You would have to be mad to use your service rather than an overdraft or a credit card.
Also why don’t you quote your typical APR on your home page? Are you scared that you will scare people off? Your seem to be not only very expensive, but not very transparent either
Yes, you sound like really responsible lenders….
August 8th, 2008 at 9:52 am
Thanks for your comment. We can understand how our official APR may seem huge compared to that of a bank loan or credit card, but it’s really not an appropriate measure to use for a short-term cash advance. We charge 1% interest per day but our maxiumum loan is one month and can be as little as five days.
APR stands for annual percentage rate and is inherently a measure of cost over a year or more. Imagine phoning up a hotel to find out the cost of a room for a short break and being told the price for a year. It’s obviously an irrelevant figure because you only want to stay for a weekend, but that’s what you effectively get by trying to use APR to weigh up the cost of a very short-term loan.
We respect UK law and therefore show the APR clearly in several places on our website, plus during the application process. But we also calculate the total amount repayable (TAR) upfront. We’re confident this is the information our customers truly value and they can even determine the cost by choosing the exact size and length of the advance required.
Telling people the exact cost and not changing it means transparency to us.
August 8th, 2008 at 9:49 pm
Thankyou for your response
Whatever you say, if you can borrow with an overdraft or on a credit card, it will be many, many times cheaper.
I still think that you should have a typical APR next to your calculator results on your home page. I think that if this was referred to the OFT or Trading Standards, they would agree that a typical APR should be trigerred.
October 17th, 2008 at 1:24 pm
I agree that it would be cheaper to go with an overdraft or a credit card. The key to bear in mind is that “you have to pay it back”. In my opinion there is a different issue to face here. The point is that Wonga requires you to pay back the full amount + interest back within 30 days. This means that you can’t get yourself into a debt spiral. The problem with cards and overdrafts is that you can just keep paying interest ad infinitum without ever facing up to the scale of your debt problem. Debt is a complex issue and APR certainly addresses one aspect of it. What APR doesn’t address is the situation that seems to have got us into the Credit Crunch….the fact that you have to pay back your whole debt eventually and not just your interest.
November 24th, 2008 at 11:46 am
That’s fine Gheljn – I understand the benefit of having to pay the debt back, for some customer.
What I do think, is that any credit provider should be transparent about the cost of credit and display a typical APR,as the law prescribes. It strikes me that Wonga hides its APR & is scared of transparency.
I also think that you completely misunderstand the drivers of the credit crunch!
November 25th, 2008 at 6:44 pm
Our APR is clearly highlighted around the site, such as in the How to Wonga page and FAQs. It’s certainly not hidden in any sense. It’s also in our contract of course. But most importantly it’s shown at the point an offer of credit is made – when you click apply. The entire cost is laid out in our summary page, including the APR, and it couldn’t be clearer. We welcome your thoughts though and are continuously considering all the feedback we receive from customers and other people. Best regards from the team at Wonga.