Responsible online loan lenders Wonga.co.za take care to ensure that borrowers are fully aware of what they are committing to when they sign up for a loan. One of the problems (as highlighted in the recent annual survey that Wonga SA carried out) is that many people don’t look beyond just getting hold of the money they need. They often neglect check the interest rate that is offered on the loan, and they don’t calculate what it means in terms of the total amount of money they will have to pay back.
Not fully understanding debt is a global problem
Of course the problem isn’t simply limited to South Africa. It happens on a global scale. Much is made of responsible lending – a business ethic that Wonga fully embrace. But not enough is said about responsible borrowing, and this is where the essence of the problem lies when it comes to borrowers getting into trouble.
The other thing that potential borrowers need to understand is that there are various products available when it comes down to choosing a loan. It all depends on the nature of the need, as to what type of loan is best for you. For example, at one of the scale you have a long term like a mortgage. The current trend in the UK for example is to take out a 30 year mortgage.
At the other end of the scale you have payday loans; the type that Wonga specialise in. These are short term loans which are typically taken out for a matter of days.
Various loan products carry various interest rates
The application of interest and the amount of interest varies according to the product. In Spain right now according to the euroresidents.com website, the variable mortgage interest rate is currently around 4.7%. On the other hand the interest rate for something like a payday loan is around 1500% per annum. There are several reasons for the difference. They include things like the duration of the loan, and the fact that a mortgage is what is known as a secured loan, as opposed to a payday loan which is an unsecured loan.
With a secured mortgage loan the security is taken on the house. If you seriously default with your repayments, the mortgage provider can repossess your house. With an unsecured loan like payday loan, the lender doesn’t have any security; so if the borrower defaults on payment, it’s not quite so easy to seek recompense. Because an unsecured loan is that much more risky than a secured loan, the interest rates charged are higher; they have to be to make it worthwhile for the lender.
Although 1500% might initially sound like a lot, it must also be born in mind that the loan period is only a matter of days. So if you take 1500% and divide it by 365 (the total number of days in a year) it calculates out at 4.11% per day, a much more manageable figure.
Wonga’s article on debt advice
Its understanding this sort of loan logic that is so important for borrowers. An article published on the Wonga.co.za website entitled “Do you understand debt?” takes potential borrowers through the basics of getting to grips with the facts about loans. It’s all part of Wonga’s commitment to educating their clientele to try and make sure they don’t overstretch themselves.