Simon Read: Need cash? Need an APR of 4,214 per cent? Welcome to Newcastle's new sponsor Wonga
Wonga is Britain's biggest payday lender, although it doesn't like to be called that. Instead, it says it offers short-term, high-cost credit.
It lends up to £1,000 a time for up to 30 days and quotes a representative APR, or annualised percentage rate, of 4,214 per cent. But the firm claims that eye-watering figure is irrelevant, as it does not lend over a year.
Yesterday on its website it quoted the cost of borrowing £400 for 30 days as £125.48. That means having to pay back £525.48 – a hefty wedge for someone who may have borrowed the money in an emergency. Figures like that are why payday lenders come in for so much criticism.
The Office of Fair Trading is now investigating the whole sector amid accusations that payday lenders target vulnerable people and encourage them into a spiral of debt they cannot afford to repay by allowing them to roll over loans, month after month, until the total owed is much more than the amount originally borrowed.
Wonga claims it restricts the number of rollover loans and does not target the unemployed or students.
But it has made huge profits on the back of its proposition of easy money. Wonga's accounts published at the end of last week revealed the firm made pre-tax profits of £59.2m in 2011 – more than four times the 2010 figure of £14.1m, showing how a short-term lender can cash in on people struggling to survive during the recession.
Its existing shirt sponsorship of Blackpool appears to be aimed at improving brand recognition in an area of high poverty. The fact that its new deal is in a similarly depressed area seems to be unsurprising.
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