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Pay Day Advnace Loan Companies...

markysimmo

markysimmo

Johnny nice-tits
So many averts on all day on the tv about these companies like paydayadvance.com and wonga to name but two

APR of 2k + %, scary scary stuff, cant see why anybody would use these unless your massively desperate...
 
They're advertised as short term loans, but when you start talking about borrowing low level amounts to get you through to the end of the month then you're in trouble.

Loan sharks with marketing and technology, nothing more.
 
Putting an APR on a pay day loan is very unfair. Why have an APR when you can only borrow the money for 30 days.

When I looked at Wonga.com I was impressed, you can borrow ?ú400 for around ?ú30.

Compare that to ?ú25-50 if you go overdrawn at the bank, plus letters to tell you you're overdrawn, plus interest etc etc.

If its a week from pay day and you're bathroom floods, what are you going to do?

This is a relatively cheap way of getting short term cash without getting fudged by your bank, I welcome competition.

I've looked into being a lenedr with the likes of Zopa.com:

http://uk.zopa.com/ZopaWeb/public/lending/lending-at-zopa.html

This is basically social lending, you can decide the amount and risk profile of the people you want to lend to, (the higher the risk the higher the interest) and away you go!! You can get 8%+ for your money and the default rates are very low as the loans are properly credit checked etc.

Again.....if the banks aren't lending why not lend to eachother as a society? People who need credit get it and people getting a brick return on their money with the banks can get above inflation returns.

These things are not as they seem.
 
Pretty damning indictment of the way things are going when these companies can afford to advertise on TV.

They've replaced all the the sub-prime lenders who were pushing easy credit a few years ago (when easy credit existed).

Which replaced the adverts for pensions/ISAs etc because regulation has pretty much eliminated that market.
 
Yossarian said:
Pretty damning indictment of the way things are going when these companies can afford to advertise on TV.

They've replaced all the the sub-prime lenders who were pushing easy credit a few years ago (when easy credit existed).

Which replaced the adverts for pensions/ISAs etc because regulation has pretty much eliminated that market.
Click to expand...

Care to elaborate? I am not aware of any specific regulation recently targeting the pension/ISA's market
 
Steed Train said:
Care to elaborate? I am not aware of any specific regulation recently targeting the pension/ISA's market
Click to expand...

IFA's are all very heavily regulated, especially after the endowment mis-selling scandal.

My brother has had to a brick load of new exams in order to still be able to give advice. Pensions are one of the most heavily regulated areas of finance.
 
Leeds Spur said:
IFA's are all very heavily regulated, especially after the endowment mis-selling scandal.

My brother has had to a brick load of new exams in order to still be able to give advice. Pensions are one of the most heavily regulated areas of finance.
Click to expand...

Quite. No-one really wants to buy them now either, given the collapse in annuity rates, stealth taxes, general cynicism regarding financial services.

Under the Brown Terror's means testing regime, the first ?ú100K approx you accrued in a pension fund was effectively worthless, given that the State committed to a "Minimum Income Guarantee" which would increase your State Pension by the amount per week that your ?ú100K fund would generate.

Now they're going to roll out at massive expense a new Scheme into which all employees will be enrolled (larger companies' payrolls first). This Scheme however, is not compulsory. You can opt out. I would be surprised if less than 50% of employees chose to opt out.

Madness.
 
Another massive tax on business.

My wife employs 8 staff........the pension contributions she'll have to make would pay for 1/2 more staff.

Did someone mention that unemployment was quite high?
 
The Rights of Wonga

No not money itself, the company that loans it out.

Wonga.com have come in for a significant amount of flak for their business practices. I have to admit, I gawped as soon as I saw the interest rate of a whopping 4,214% typical APR. I initially shrugged it off as a business that would only appeal to the most desperate of people.

However, the creators of the business gave an interview to the UK edition of Wired this month and they have a lot of interesting points to make. None of which are likely to escape the techno-fanboy realm of Wired; and they certainly won't make it into the pages of the likes of the Guardian.


Wonga argue that they are disrupting what has fundamentally been a monolithic monopoly market by providing small, short term loans. Something that the current banking sector in the UK simply does not service. In the interview the creators claim that customers want three things from such a service: "Firstly, simplicity - the ability to borrow what they want, when they want. Secondly, speed - the transaction needs to happen fast. Thirdly, they want to know exactly and clearly what the loan is going to cost them whether they pay on time, pay early or even miss their deadline."

Banks, they argue, have no incentives to meet these needs. Internet technologies however make all three perfectly servicable.

Errol Damelin (one of Wonga's creator) even goes on to make the oft-made by libertarians, rarely-heard by others, corporatist point: "Banks love regulation. They have been better than anyone else at co-opting it to suit themselves. They love embedding themselves into the messy greyness of how policy is created. And that makes it harder for them to innovate. They're all wink-wink. They don't compete. When did you last hear of a bank competing to bring down the cost of CHAPS payments? When was the last time you saw an interesting new Barclays product? I don't think ever."

And looking at the figures Wonga no longer seems so bad or as exploitative as their detractors have made out. Despite the horrifying interest rate, in practice it would mean a loan of ?ú400 repayable over 30 days would come to ?ú525.48. I've occasionally been up the proverbial creek because an employer has screwed up my pay and my rent and bills are due the next day. I can certainly see occasions where Wonga's services could have been useful in the past and in today's increasingly hand-to-mouth economy I can see why other people might have cause to use them too.

The position is that they are not exploiting people, but providing a service to a generation that has had expectations of flexibility and speed for some time in this sector that simply are not met.

Damelin puts its utility this way in the interview: "We do small, short-term things, and the cost of delivering that service is high.....Catching a cab might be expensive, but it's convenient and nobody complains that being charged ?ú15 for getting across London is immoral."

And the competition?

It gets more interesting: In order to provide an incredibly fast turnaround for their loans, Wonga have opted to have sameday loan applications processed solely by their algorithm. You read that right. No human input.

Their algorithm uses a bespoke method of credit scoring that learns from previous transactions. I, and many others it seems, supposed that the business must have a high default rate. Initially they used the same credit scoring methods as the rest of the finance industry, leading to a 50% default rate from the customers who were being granted loans. However as they moved away from this system and onto their own algorithm, the default rate dropped to single figures (they refuse to release the exact figure however they claim that it is industry leading). The typical default rate assumed by banks is 10%.

This means that despite being in the most high-risk financial sector Wonga are outperforming the high-street banks. They speculate that they could possibly do the same for consumer banking. It's an interesting thought that such an upstart could seriously challenge the retail banking monopolies isn't it?
 
Leeds Spur said:
Putting an APR on a pay day loan is very unfair. Why have an APR when you can only borrow the money for 30 days.

When I looked at Wonga.com I was impressed, you can borrow ?ú400 for around ?ú30.

Compare that to ?ú25-50 if you go overdrawn at the bank, plus letters to tell you you're overdrawn, plus interest etc etc.

If its a week from pay day and you're bathroom floods, what are you going to do?

This is a relatively cheap way of getting short term cash without getting fudged by your bank, I welcome competition.

I've looked into being a lenedr with the likes of Zopa.com:

http://uk.zopa.com/ZopaWeb/public/lending/lending-at-zopa.html

This is basically social lending, you can decide the amount and risk profile of the people you want to lend to, (the higher the risk the higher the interest) and away you go!! You can get 8%+ for your money and the default rates are very low as the loans are properly credit checked etc.

Again.....if the banks aren't lending why not lend to eachother as a society? People who need credit get it and people getting a brick return on their money with the banks can get above inflation returns.

These things are not as they seem.
Click to expand...

Leeds, you are correct in that this business is really useful if somehing like your above scenario arises.
The problem is, that is not the target audience (indeed the market woulod be quite small) - a quick look at the adverts shows it is the weak or desperate that are being targeted (and you know my views regarding people taking responsibility with their own choices), not the person that needs ?ú400 to fix a leak and can then make adjustments over the next month or two to redress the balance

its just the new way, fashionable way, of increase personal debt for max profit
 
Leeds Spur said:
The Rights of Wonga

No not money itself, the company that loans it out.

Wonga.com have come in for a significant amount of flak for their business practices. I have to admit, I gawped as soon as I saw the interest rate of a whopping 4,214% typical APR. I initially shrugged it off as a business that would only appeal to the most desperate of people.

However, the creators of the business gave an interview to the UK edition of Wired this month and they have a lot of interesting points to make. None of which are likely to escape the techno-fanboy realm of Wired; and they certainly won't make it into the pages of the likes of the Guardian.


Wonga argue that they are disrupting what has fundamentally been a monolithic monopoly market by providing small, short term loans. Something that the current banking sector in the UK simply does not service. In the interview the creators claim that customers want three things from such a service: "Firstly, simplicity - the ability to borrow what they want, when they want. Secondly, speed - the transaction needs to happen fast. Thirdly, they want to know exactly and clearly what the loan is going to cost them whether they pay on time, pay early or even miss their deadline."

Banks, they argue, have no incentives to meet these needs. Internet technologies however make all three perfectly servicable.

Errol Damelin (one of Wonga's creator) even goes on to make the oft-made by libertarians, rarely-heard by others, corporatist point: "Banks love regulation. They have been better than anyone else at co-opting it to suit themselves. They love embedding themselves into the messy greyness of how policy is created. And that makes it harder for them to innovate. They're all wink-wink. They don't compete. When did you last hear of a bank competing to bring down the cost of CHAPS payments? When was the last time you saw an interesting new Barclays product? I don't think ever."

And looking at the figures Wonga no longer seems so bad or as exploitative as their detractors have made out. Despite the horrifying interest rate, in practice it would mean a loan of ?ú400 repayable over 30 days would come to ?ú525.48. I've occasionally been up the proverbial creek because an employer has screwed up my pay and my rent and bills are due the next day. I can certainly see occasions where Wonga's services could have been useful in the past and in today's increasingly hand-to-mouth economy I can see why other people might have cause to use them too.

The position is that they are not exploiting people, but providing a service to a generation that has had expectations of flexibility and speed for some time in this sector that simply are not met.

Damelin puts its utility this way in the interview: "We do small, short-term things, and the cost of delivering that service is high.....Catching a cab might be expensive, but it's convenient and nobody complains that being charged ?ú15 for getting across London is immoral."

And the competition?

It gets more interesting: In order to provide an incredibly fast turnaround for their loans, Wonga have opted to have sameday loan applications processed solely by their algorithm. You read that right. No human input.

Their algorithm uses a bespoke method of credit scoring that learns from previous transactions. I, and many others it seems, supposed that the business must have a high default rate. Initially they used the same credit scoring methods as the rest of the finance industry, leading to a 50% default rate from the customers who were being granted loans. However as they moved away from this system and onto their own algorithm, the default rate dropped to single figures (they refuse to release the exact figure however they claim that it is industry leading). The typical default rate assumed by banks is 10%.

This means that despite being in the most high-risk financial sector Wonga are outperforming the high-street banks. They speculate that they could possibly do the same for consumer banking. It's an interesting thought that such an upstart could seriously challenge the retail banking monopolies isn't it?
Click to expand...

he is completely correct with those points above - but the problem is a social one
by making quick, easy, short term borrowing so throw away and by taking away the thinking time from the consumer (more consumers ARE stupid, especially when stuck in a rut) they make bad decisions which take a lot longer to remedy than to enact

im in favour of the model of such companies - but there needs to a cooling off period of 3 days imho to a) allow for better decision making and appreciation of the consequences BEFORE completing the transaction and b) stop the thought process (driven by the last 15years boom) of "ill spend this now and IF i dont have enough a week before payday i can just borrow a bit" - which is likely to become a perpetual cycle
 
I used to wrok for a debt management company and the amount of people in real trouble because of pay day loans is scary. They take one and then another and then another and it spirals downwards. The credit checks are not the toughest either. Alot of younger people get on these loans and it really sets them back as they spend the next year trying to cover the interest payments alone and not even paying the actual borrowed amount back.

It is not a good system except for mature borrowers who are well budgeted, most people arent.....
 
monkeybarry said:
Leeds, you are correct in that this business is really useful if somehing like your above scenario arises.
The problem is, that is not the target audience (indeed the market woulod be quite small) - a quick look at the adverts shows it is the weak or desperate that are being targeted (and you know my views regarding people taking responsibility with their own choices), not the person that needs ?ú400 to fix a leak and can then make adjustments over the next month or two to redress the balance

its just the new way, fashionable way, of increase personal debt for max profit
Click to expand...

Mate - they default rate is LESS than 10%!!

So the vast majority of people pay the money back!

I see no issue with the service, you are paying a premium for being a subprime loanee and for the fact you get the money instantaineously.

If you wanna by smack or heroin fine, i'd rather them do this than mug someone! And if they default they can't loan again...simples.
 
LutonSpurs said:
I used to wrok for a debt management company and the amount of people in real trouble because of pay day loans is scary. They take one and then another and then another and it spirals downwards. The credit checks are not the toughest either. Alot of younger people get on these loans and it really sets them back as they spend the next year trying to cover the interest payments alone and not even paying the actual borrowed amount back.

It is not a good system except for mature borrowers who are well budgeted, most people arent.....
Click to expand...

I took out a ?ú5k graduate loan that look years to pay back and I didn't need. I took out ?ú12k of student loans because they were there and spent most of it on booze, pizzas and weed.

Aren't the Student Loan Company a bunch of preditory ****s?!!
 
Leeds Spur said:
But have ZERO evidence to back that up.
Click to expand...

It doesn't mean that it shouldn't be a concern.

There is a lot of evidence that pleny of people pay off credit card debts by taking out loans elsewhere. It is reasonable to expect that people will behave similarly when faced with these types of loans.
 
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