How much is Wonga interest rate?

Amid all of the government scrutiny on high street lenders, surely none can charge obscene interest rates to UK citizens. Yet payday loan rates have reached new highs. Wonga is one of the leading providers of these controversial products and its rates do not disappoint those seeking shock factor.

Wonga displays a representative interest rate of 5,853% APR on its website. While it charges a 1% simple interest rate, the representative APR includes all other fees in order to provide a more accurate estimate of actual costs incurred by a borrower. Extra charges can include a £5.50 transmission fee, £10 extension fee and £20 late fee.

The representative APR is revealed to comply with new strict regulations imposed by the Financial Conduct Authority (FCA). The purpose is to ensure that applicants can compare the likely costs charged by competing products.

The hope of authorities in requiring this APR disclosure is that citizens will better understand the risks of obtaining debt with such steep borrowing costs. The reality is that the disclosures are doing little to turn away determined borrowers.

Wonga would be quick to point out that its loans are designed to be taken out only for short time periods, such as for two weeks. However, such high costs are extraordinarily high considering the small amount actually borrowed. To put it into perspective, these costs equate to 100 to 300 times as high as those normally charged by credit card issuers.

Consumer advocates counter the claims of lenders by stating the fact that most of these customers choose to renew the loans multiple times rather than pay them off in full. This irresponsible behaviour was enough to prompt FCA to push for a concrete limit on rollovers.

How does Wonga rate compare?

Compared to other payday loans, Wonga charges an even higher rate of interest. Its continued profits are largely due to successful marketing campaigns.

4.00% APR mortgage rate
13.02% APR on fixed rate credit cards
15.66% APR on variable rate credit cards
5,853.00% APR on Wonga payday loans

To put it in perspective, you could simplify APR to demonstrate the actual cost to a borrower. Figure that at 4% APR, a person could expect to pay £4 each year on every £100 borrowed. A 16% APR would cost £16 to borrow £100 for one year. A 5,853% APR means that it would cost £5,853 to borrow £100 for a year. While this may be an oversimplification of the way interest is calculated, it does show how extraordinarily high such rates really are.

Wonga has been in the crosshairs of regulators, but not for its sky high finance charges and fees. Its rates have been completely legal. Recent actions were actually related to the use of collection notices from phony law firms.

While wise consumers would never agree to borrow money under such oppressive repayment terms, these products are becoming more popular amongst UK citizens. It shows that despite the mandatory rate disclosures, borrowers are turning a blind eye to the risks of being unable to repay the loans.