Wonga provides short term low-value loans with pretty high interest rates when you annualise them. For example, you could borrow £100 today and repay £115.91 in 10 days time (APR: 3,003%; Cost: £115.91) or £110.70 in 5 days (APR: 3,253%; Cost: £10.70).
Loan sharks are often criticised for ‘forcing’ people to pay such high interest rates, but the examples above show that it is not so clear cut. In developing countries, the high interest rates charged by informal money lenders are often criticised with disgust and used as a justification for more formal credit such as microcredit schemes.
Although there are some unscrupulous money lenders around, in general money lenders provide a necessary service without which the world’s poorest would find it more difficult to survive. They allow poorer households to access short term loans at very short notice and with a minimum of effort. The high interest compensates for the risk, the ease of access and the short-term nature of the loan. Without the high interest rates a sufficient number of money lenders would not exist. Without a sufficient number of money lenders, a lot of poor households would be forced to go without funds to pay for food, medical fees, education. Finally, this service has come to the UK!
Wonga provides a wonderful little cartoon to illustrate how much other things would cost if we annualised their value:
2 comments:
I can't see the cartoon! :(
Sorry Pinolona -- image now there :)
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