Payday loans,why all the interest?

[DB11]

Ya wha?

I think it was in response to your "rent himself out" comment - BoxingFoxes would be up for it providing your mate's house has a balcony

[BunkMoreland]

The problem is not that people will abuse it and get themselves into trouble, the problem is companies like Wonga rely on people mis-using it and abusing it

Not sure about that. They don't make money from people who can't pay them back, they end up selling the debt at a loss

[Captain...]

Not sure about that. They don't make money from people who can't pay them back, they end up selling the debt at a loss

At what kind of loss?

a £400 loan at 4,000% apr will be £16000 debt after a year, they then sell that debt for 10%, yes they are in theory making a massive loss, but in reality they are turning £400 into £1,600 and don't have the hassle of even taking anyone to court.

[Houdini Logic]

At what kind of loss?

a £400 loan at 4,000% apr will be £16000 debt after a year, they then sell that debt for 10%, yes they are in theory making a massive loss, but in reality they are turning £400 into £1,600 and don't have the hassle of even taking anyone to court.

The APR quoted is the worst case scenario for the shortest term, so let's say you wanted to borrow £400 today and pay it back tomorrow they may charge you £40, which on a long term basis would be 10% after a day, 100% after 10 days, 1000% after 100 days and somewhere around the 4000% per year. Your example is assuming that if you wanted to take out the same loan for 2 days that it would cost you £80, but in reality that's not the case - they'd drop the APR and you'd pay something like £42 pound. Also, if people find it difficult to repay then the APR doesn't apply - instead you pay the interest for the month (£40 in the example) and then the same fee is applied to the for the next month (so you'd still owe £440). I can see why this can be an issue, but I can also see why it's not much different to paying the minimum interest on an overdraft or credit card and still having the debt. And also it means that if someone borrows £400 and doesn't repay it then the yearly balance would be around £900, not £16,000!!!

[Captain...]

The APR quoted is the worst case scenario for the shortest term, so let's say you wanted to borrow £400 today and pay it back tomorrow they may charge you £40, which on a long term basis would be 10% after a day, 100% after 10 days, 1000% after 100 days and somewhere around the 4000% per year. Your example is assuming that if you wanted to take out the same loan for 2 days that it would cost you £80, but in reality that's not the case - they'd drop the APR and you'd pay something like £42 pound. Also, if people find it difficult to repay then the APR doesn't apply - instead you pay the interest for the month (£40 in the example) and then the same fee is applied to the for the next month (so you'd still owe £440). I can see why this can be an issue, but I can also see why it's not much different to paying the minimum interest on an overdraft or credit card and still having the debt. And also it means that if someone borrows £400 and doesn't repay it then the yearly balance would be around £900, not £16,000!!!

Yes but if they have already paid £40 back each month then by the end of the year they will have paid £480 back for a loan of £400, then Wonga can sell the debt for free and still have an £80 profit, except they wouldn't in that case as they are still getting the £40 a month so they would keep that one until they stopped paying the minimum a month and the debt escalates so then they sell the thousands of pounds worth of debt for 10% having already profited on the original loan.

As a concept I have no problem with it, I have a problem with the free market that run it for profit, and maximising profit involves selling these loans to people who can't pay it off easily. That is why I think it should be run and regulated by the banks.

[Rincewind]

Just checxked my emails and have one from a company called Quiddo offering loan. There is a link to unsubscribe but I don't remember subscribing. I've spammed it.

[Zingari]

The government is to change the law to allow restrictions to be imposed on the interest rates charged for so-called "payday loans".

http://www.bbc.co.uk/news/uk-politics-20531126

[Saxondale]

At what kind of loss?

a £400 loan at 4,000% apr will be £16000 debt after a year, they then sell that debt for 10%, yes they are in theory making a massive loss, but in reality they are turning £400 into £1,600 and don't have the hassle of even taking anyone to court.

That's not how APR works. I posted an explanation how it works in a different thread, which I can't be arsed to find.

I think Wonga's flat rate (the actual amount of interest paid) is about 10% per month.

[Brenfox]

Wonga don't do long term loans. I think it's a maximum of 40 days or something like that. If you have an unexpected outlay & are unable to borrow the money elsewhere then they are useful as long as you are sensible.

[sphericalfox]

http://www.mirror.co.uk/night-copy/wonga-the-men-who-made-50million-830110

Another person benefiting from Wonga.com’s success is venture capitalist Adrian Beecroft, a major donor to the Tory party, having handed over £593,000 since David Cameron became leader. Mr Beecroft is chairman of Dawn Capital, which has a large stock in Wonga Group. Latest accounts show the company, which is now worth £384m, was worth a mere £17m in December 2010.

[BunkMoreland]

Well done to him. Great investment, perfectly legal and above board, and looks to have made a fortune out of it.

Doubtless there will be some who say he doesn't deserve it, though. Can't have success now, can we.

[Zingari]

the unacceptable face of capitalism

[Captain...]

Well done to him. Great investment, perfectly legal and above board, and looks to have made a fortune out of it.

Doubtless there will be some who say he doesn't deserve it, though. Can't have success now, can we.

As Long as that success comes from a business model that doesn't actively set out to exploit people.

Paying a £20 fee for a short term loan of a couple of hundred is fine, but the fact is wonga and other pay day loan companies actively set out to lure people into spiralling debts that they can then sell.

No problem with people making money from offering a service, good luck to them, but they are just exploiting banks reluctance to loan to offer short term loans at ridiculous rates without proper credit checking.

[BunkMoreland]

As Long as that success comes from a business model that doesn't actively set out to exploit people.

Paying a £20 fee for a short term loan of a couple of hundred is fine, but the fact is wonga and other pay day loan companies actively set out to lure people into spiralling debts that they can then sell.

No problem with people making money from offering a service, good luck to them, but they are just exploiting banks reluctance to loan to offer short term loans at ridiculous rates without proper credit checking.

You just ignoring the poster who has already proved this point wrong earlier in the thread then?

[Houdini Logic]

As Long as that success comes from a business model that doesn't actively set out to exploit people.

Paying a £20 fee for a short term loan of a couple of hundred is fine, but the fact is wonga and other pay day loan companies actively set out to lure people into spiralling debts that they can then sell.

No problem with people making money from offering a service, good luck to them, but they are just exploiting banks reluctance to loan to offer short term loans at ridiculous rates without proper credit checking.

Where is your basis that they make their money by selling debt?

Over 91% of people pay back their loan first time and only 0.4% of people extend their loan three times (the maximum).

In fact almost one in four people pay back their loan early and as such pay less than the originally agreed figure.

I'm sure you'll take this opportunity to show me some reliable figures to show you actually know what you're talking about and you're not just making it up as you go along like you did with the £15,600 a year interest on a £400 loan.

[Captain...]

You just ignoring the poster who has already proved this point wrong earlier in the thread then?

Already responded to those posts a few times, I think it was my final post proving him wrong that he ignored.

Where is your basis that they make their money by selling debt?

Over 91% of people pay back their loan first time and only 0.4% of people extend their loan three times (the maximum).

In fact almost one in four people pay back their loan early and as such pay less than the originally agreed figure.

I'm sure you'll take this opportunity to show me some reliable figures to show you actually know what you're talking about and you're not just making it up as you go along like you did with the £15,600 a year interest on a £400 loan.

Can you tell me how many people default on their payments and get into debt and what the average debt is that those 9% that don't pay back early get into?

You seem to have all the facts to hand, I will admit at the moment I don't, although if you could provide your source for those figures would be nice.

Can you explain why they are currently bringing in greater regulations for Payday loans if they are all above board.

[Captain...]

Care to comment?

http://www.bbc.co.uk...siness-20406659

The payday loan industry has been warned to improve the way it lends money and collects debts, or face fines or closures.

The Office of Fair Trading (OFT), in an interim report, says most of the 50 big firms it has been inspecting do not operate fully by its rules.

The OFT says it is worried by reckless lending and aggressive debt collection.

It has now begun formal investigations into several payday lenders over aggressive debt collection practices.

The OFT will publish its full report in the new year, when it has ended an investigation which it started in February 2012.

But David Fisher, the OFT's director of consumer credit, said all 240 payday lenders have been put on notice to improve.

"What we are discovering is that right across the sector problems exist and the industry as a whole certainly needs to raise its game," he told BBC News.

He added that recent estimates suggested that the industry was now lending £1.8bn a year, double the amount of a couple of years ago.

Updated rules

The OFT is worried about the "poor practices" which its enquiries have been uncovering, and which chime closely with many of the criticisms that consumer groups have been making of payday lenders.

Among the OFT's concerns are that:

• lenders do not check properly if their borrowers can afford to repay the money they have borrowed
  
• too many loans are not repaid on time
  
• the loans are then extended too often
  
• lenders are too aggressive when borrowers fail to repay promptly
  

The regulator has become especially worried about the way payday loan firms use a type of repayment agreement called a continuous payment authority (CPA), using a credit or debit card to ensure they are repaid automatically.

The OFT has updated its rules for the industry to make it clear that if borrowers sign up for a CPA, it must be with their explicit agreement.

Borrowers must be told how a CPA works and how they can bring one to an end.

Lenders must not keep on trying to drain cash from their borrowers' accounts if there is not enough money available to meet the debt.

Meggan Tile owes seven thousand pounds in payday loan debt and describes how the stress used to keep her awake at night

"Our report shows that a large number of payday loans are not repaid on time," said Mr Fisher.

"Our revised guidance makes it absolutely clear to lenders what we expect from them when using continuous payment authority to recover debts and that we will not accept its misuse."

The UK's most high profile payday lender, Wonga, said it welcomed the OFT report and its recommendations, which add to a new industry code of practice that was announced in the summer and which comes into effect next week.

"Regarding continuous payment authority, which is also used by a broad range of businesses outside of consumer credit, we believe it is an important method of collection and we share the OFT's concerns that it must not be misused," said a Wonga spokeswoman.

'Bad situation worse'

Joanna Elson, chief executive of the Money Advice Trust, welcomed the OFT's interim report.

She said the experience of clients coming to the Trust for advice was that "payday loans have a habit of making a bad situation worse".

"We have a lengthy list of concerns about the practices of many companies in the sector and we hope the OFT review will kickstart a more serious consideration of the problems payday loans create," she said.

"Many thousands of people have come to us for help after having seen their debt problem made far more serious by taking out one or more payday loans," she added.

The Financial Ombudsman Service (FOS) has found a small but increasing number of people complaining to it about payday loan firms.

A spokesman said the main reason for people complaining was that the loan had been unaffordable and should never have been granted in the first place.

"In the first half of this financial year - April to September 2012 - we received 271 new complaints; this compares to the 296 complaints brought to our service during the whole of last year (2011-12) - and we are currently upholding eight out of 10 cases in favour of the consumer," said an FOS spokesman..

[Saxondale]

Where is your basis that they make their money by selling debt?

Over 91% of people pay back their loan first time and only 0.4% of people extend their loan three times (the maximum).

In fact almost one in four people pay back their loan early and as such pay less than the originally agreed figure.

I'm sure you'll take this opportunity to show me some reliable figures to show you actually know what you're talking about and you're not just making it up as you go along like you did with the £15,600 a year interest on a £400 loan.

Already responded to those posts a few times, I think it was my final post proving him wrong that he ignored.

Can you tell me how many people default on their payments and get into debt and what the average debt is that those 9% that don't pay back early get into?

You seem to have all the facts to hand, I will admit at the moment I don't, although if you could provide your source for those figures would be nice.

Can you explain why they are currently bringing in greater regulations for Payday loans if they are all above board.

As I've already explained, they make huge losses selling on debt. That is why you pay more interest if you are a higher risk. That is how the whole business model works.

My source? Me. I was an Area Manager for a (prime) finance company for four years - I do know what I'm talking about.

[Houdini Logic]

Already responded to those posts a few times, I think it was my final post proving him wrong that he ignored.

Are you talking about me here? If so the last post you replied to of mine you completely backtracked on what you said so I laughed and moved on. No idea what you're talking about proving me wrong but happy for you to point that out to me again

Can you tell me how many people default on their payments and get into debt and what the average debt is that those 9% that don't pay back early get into?

Nope. But I'm sure you can with all these strong opinions you have?

You seem to have all the facts to hand, I will admit at the moment I don't, although if you could provide your source for those figures would be nice.

I googled it - give it a go. You may also find some independent surveys saying 92% of customers would recommend Wonga to a friend. You're more than happy to penalise these people?

Can you explain why they are currently bringing in greater regulations for Payday loans if they are all above board.

To score points with people like you who too often look to outlaw everything rather than look to educate people properly.

The government are also bringing in tougher regulations on alcohol - does that mean it's illegal to drink? Give it a rest

[Captain...]

Are you talking about me here? If so the last post you replied to of mine you completely backtracked on what you said so I laughed and moved on. No idea what you're talking about proving me wrong but happy for you to point that out to me again

Nope. But I'm sure you can with all these strong opinions you have?

I googled it - give it a go. You may also find some independent surveys saying 92% of customers would recommend Wonga to a friend. You're more than happy to penalise these people?

To score points with people like you who too often look to outlaw everything rather than look to educate people properly.

The government are also bringing in tougher regulations on alcohol - does that mean it's illegal to drink? Give it a rest

The last post was you saying they pay back the minimum every month without actually paying off the debt, so they pay back the interest which means they quickly pay back more than the value of the debt, and still have the debt, which if then isn't paid back they can sell the debt for whatever loss they want because they have already made money off it.

You didn't respond.

I don't want to stop the 92% of people who can manage debts from doing anything, what I want is for the 8% that get ripped off to be protected by ensuring that pay day loans companies do adequate credit checks, the only reason not to is to exploit that 8% and make money off their inability to manage their finances.

There is also more than just Wonga, as one of the biggest, they are probably one of the best and the most reputable. This is not just about Wonga, there are many more.

Believe me I don't want to outlaw everything, I would much rather people were educated and able to make sensible decisions for themselves, but that is not the world we live in at the moment.

Like I said I support the concept as long as people aren't exploited and lured into debt they can't handle with the promise of fast easy cash without credit checks.

[Captain...]

As I've already explained, they make huge losses selling on debt. That is why you pay more interest if you are a higher risk. That is how the whole business model works.

My source? Me. I was an Area Manager for a (prime) finance company for four years - I do know what I'm talking about.

You've not explained it, or if you did I missed the explanation.

So can you please point me to the post where you explained it, or explain it again briefly, was it you who said they sell the debt for 10% of the value of the debt?

But if the debt is over 10 times the amount of the original loan then it is not a loss, if they have already taken minimum payments or some repayments for the loan, then again that reduces the loss.

Do you work for a pay day loans company or deal in pay day loans debts?

[Saxondale]

You've not explained it, or if you did I missed the explanation.

So can you please point me to the post where you explained it, or explain it again briefly, was it you who said they sell the debt for 10% of the value of the debt?

But if the debt is over 10 times the amount of the original loan then it is not a loss, if they have already taken minimum payments or some repayments for the loan, then again that reduces the loss.

Do you work for a pay day loans company or deal in pay day loans debts?

What? Read the posts again.

You can argue all you like, I'm telling you how it works.

Not sticking up for them by the way, I think they're cvnts.

[Captain...]

What? Read the posts again.

You can argue all you like, I'm telling you how it works.

Not sticking up for them by the way, I think they're cvnts.

You mean this post:

As a rule of thumb, higher interest rates exist where there is a higher risk. It's a like a gamble - these lenders charge more but have a statistically lower chance of getting their money back from each customer. The sort of lending that they do is extremely high risk. In turn, the amount they pay for their money (because they will need funding, too) will be linked to their overall bad debt rate.

To give you all a bit of quantitative context, a company like Wonga's bad debt rate will be something like 10-20%. In other words, 10% of the money they lend out they won't see again. These sort of companies, after exhausting their own collecting process, will sell on the bad debt to a recovery company for approximately 10% of the value of the debt.

Their interest rates seem like, in fact are, a rip off - but they are set where they are for a reason.

Their overall return margin on the money lent, before their overheads, will be measured by a figure called RORWA (Return on Risk-Weighted Assets), and I would be surprised if their figure was much more than 3%. These sort of lenders do make big profits, but only but lending out vast amounts of money, the actual percentage return is relatively small.

This doesn't really explain it though, if it was only 3% then it wouldn't explain the massive growth in the industry.

It doesn't say at what point they sell the debt either, are they selling the debt + interest, if so what size of debt would they sell? At what point do they decide a debt is worth keeping or selling?

You take out £100 loan and it doesn't get paid back for a while and becomes £1000 debt, you sell that for 10% you get £100 back so break even, or am I missing something here?

£100 loan at these interest rates can easily reach £1000 debt.

[pSinatra]

I am totally crap with money, but I only ever spend what I've got. I like to keep it old-fashioned & don't understand or trust banks in the slightest.......never mind Wonga!!

Now I could have got this totally wrong, but I have just been on the Wonga website - out of interest. I tried to understand their explanation for not "keeping my side of the deal" (as they put it)

£100 borrowed over 7 days

total cost for borrowing £100 over 7 days is £135

If I fail to make my payment on the agreed date they charge £20 for a missed payment taking the total to £155

The debt will continue to accrue interest for up to 60 days.

£155 over 60 days leaves a grand total of £257

£100 is now £257 in the space of 2 months

They then say that the debt may be sold on & that I "possibly" won't be able to borrow again & that I have lost their trust. I'm high risk & I don't pay my debts.......why would you not ban me from borrowing from you again?? The above calculations are based on fvcking up on a £100 loan & not taking out further loans to chase the original debt.

I must have got my calculations totally wrong. Loan sharks are illegal.......but Wonga isn't??

[Zingari]

I am totally crap with money, but I only ever spend what I've got. I like to keep it old-fashioned & don't understand or trust banks in the slightest.......never mind Wonga!!

Now I could have got this totally wrong, but I have just been on the Wonga website - out of interest. I tried to understand their explanation for not "keeping my side of the deal" (as they put it)

£100 borrowed over 7 days

total cost for borrowing £100 over 7 days is £135

If I fail to make my payment on the agreed date they charge £20 for a missed payment taking the total to £155

The debt will continue to accrue interest for up to 60 days.

£155 over 60 days leaves a grand total of £257

£100 is now £257 in the space of 2 months

They then say that the debt may be sold on & that I "possibly" won't be able to borrow again & that I have lost their trust. I'm high risk & I don't pay my debts.......why would you not ban me from borrowing from you again?? The above calculations are based on fvcking up on a £100 loan & not taking out further loans to chase the original debt.

I must have got my calculations totally wrong. Loan sharks are illegal.......but Wonga isn't??

I'd say that makes you pretty good with money