If you're still sceptical about the potential for APR to confuse, when applied to very short term loans, check out this simple cartoon. It illustrates what might happen if some of life's other short term services gave you an annualised rate of charge. All of the costs shown are based on multiplying a typical outlay for these services by 365 days. That's actually far more forgiving than using the APR calculation, which not only multiplies but also compounds the actual interest involved, but it shows how the cost of any short term service can sound astronomical when annualised.
APR stands for the Annual Percentage Rate of charge and 'representative APR' is the rate that applies to at least 51% of our borrowers. The term describes the rate of charge for a whole year and expresses interest and other fees as an annual rate.
Our union of short term cash and flexibility makes for a rather unsightly APR figure! This is because it's an annualised measure that wasn't designed with short term loans in mind. The APR calculation itself takes a typical Wonga cash advance of less than a month and not only multiplies, but also compounds the interest many times over!
It's understandable to question any crazy number like this, especially when it comes to borrowing. But it's our unconventional and consumer-friendly approach to lending, combined with the mismatched annual nature of APR, that makes it so mind-bogglingly big. Check out the calculation involved...
The larger the APR the more expensive a loan, right? It’s a common perception, but with Wonga’s flexible approach to short term credit, the reverse is true. The shorter the loan period gets (and hence the smaller the charge to you), the higher the APR gets because there is even more multiplicaion and compounding of the actual interest involved. This, we believe, is a good indication of the potential for APR to mislead when trying to judge the cost of a short term loan.
APR was primarily designed for comparing like-for-like financial products, such as traditional loans of several years or ongoing credit card balances. It can still be a valid and important measure to consider with any credit, but it certainly wasn't devised with short term loans in mind. In the case of loans of a few days or weeks, it's not a straightforward representation of the interest actually charged. That’s why we also show the total amount repayable (TAR) before you apply. By being completely transparent, you can decide what's affordable and worth paying for the specific loan you need.
Much like a black cab, we offer a secure service that’s fast, convenient and transparent. You wouldn’t use one to get around every day, as there are cheaper ways to get from A to B, but on some occasions the slower or less reliable alternatives just won't do. In similar circumstances Wonga can help you solve a pressing and short term cash flow need without requiring long term repayments. And whether you value APR or not, you'll always know the total cost of repayment up front. Have a play with our sliders to see just how simple it is.
Wonga doesn't force you to borrow a single pound more than you need, or remain in debt for longer than you want to be. We charge interest only for the number of days you require the loan, so you dictate the cost by choosing when to repay, from between one day and a month. You can even repay Wonga earlier than promised and save money - there are no early repayment charges or other catches here.