One of the most controversial payday lenders in the UK announced this week that it’s delving into longer-term lending usually reserved for credit cards.
Wonga has tired of being the payday loan industry’s whipping boy – regardless of whether or not they’ve earned the ire of pretty much every debt advice charity out there – and has announced it’s taking on credit card providers with a new three-month loan product ca;led PayLater. The new service is a breath of fresh air when it comes to the massive interest rates Wonga charges on their one-month short term loans, but industry experts say they’re still not as cheap as using a traditional credit card.
The service allows a customer to purchase something by paying only 7 per cent of the purchase price up front and then spread the cost of the item over the next three months in a trio of equal payments. This means that a £100 purchase requires only £7 paid immediately, followed by a £33.33 payment every month for the next three months.
The new service has an annualised percentage rate of only 27.7 per cent, which is far and above much, much lower than the lender’s usual 4,214 per cent APR that it charges to its payday advance lending customers. However, industry experts say that you’re still not getting your money’s worth with just a quick comparison between Wonga’s interest rates and the typical interest rate charged by an average credit card provider.
The average APR on a typical credit card is around 18 per cent, experts say, which is much improved over Wonga’s offering. In real world terms, a £100 purchase that was made on a credit card and paid off over a three month period would result in interest of only around £3 – a savings of £4.
This means it’s more than two times as expensive to use the PayLater service than it is to purchase the same item on a credit card. However, the appeal of such a service is in that it is incredibly less expensive than a typical payday loan, which may lead to the estimation of the payday lender going up in the eyes of many who have been burned by its high interest antics in the past.