Wonga (noun): Money (slang; used in the UK and especially in London – “A whole lotta wonga”)

Do you ever feel like your wallet or bank account has sprung a leak? How does your account empty so fast and where does all the money go? Ever found yourself in a cash crunch just a few days before your next payday? If you need urgent and short term cash then Wonga.com is where you go. It is a UK based company and the idea behind it is that you borrow some money from them and then repay the amount (with interest, of course) it when you get your next pay or on some other specified day. Here is a screenshot of the main part of their homepage.

The two sliders let you choose the amount you need and how long it will take for you to pay back the amount. You can borrow a maximum of 400 pounds for the period of anything from one to 30 days. You can borrow more next time (upto 1000 pounds) if you repay your loan in time and have a good ‘trust rating’. The amount you owe them is automatically calculated.

After clicking the apply now button you will have to fill in some details about yourself. Wonga then does some algorithmic calculations based on the data you provided and which is available publicly to decide whether you are eligible for the loan. Once confirmed, you have to fill in your contact information (your address and phone number) as a part of the credit checks. And finally you have to give your bank and debit card details.

As soon  as you finish this, you will get an instant answer and, if approved, the cash to your bank within 15 minutes!

On your chosen date they will collect a single payment from your debit card. So you need to ensure the required funds are available in the bank account.

That looks simple, but one important thing to consider before taking any loan is the APR or the Annual Percentage Rate for the loan. Payday loans usually have an astronomically high APR. For Wonga, it stands at around 2689%. They say that this is because it’s an annualised measure that wasn’t designed with short term loans in mind. See this illustration of what might happen if some of life’s other short term services gave you an annualised rate of charge.

That’s actually far more forgiving than using the APR calculation, but it shows how the cost of any short term service can sound astronomical when annualised.

The loans these companies provide are some of the most expensive anywhere, they should really only be considered by those in desperate need of immediate cash who can be sure of being able to repay the money over a very short period.

The internet has changed how we buy and sell stocks. But it didn’t fundamentally change the market that much, it just moved part of it online. Services like Wonga are innovative as you won’t find a bank that will lend you money for a week.

If websites like these become popular, this would be as radical a shift for the finance industry as when the music industry had to start selling by the song and not the album. Finance has been so anti-innovation and so anti-consumer for so long, internet is slowly changing that.
[cb type="company"]Wonga[/cb]