Quick high-interest loans dangerous, credit expert warns
Wonga Canada offers small, short-term loans online
A Calgary credit expert is warning people about the potential pitfalls of a new money lending service that’s trying to attract young customers in Alberta.
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Wonga is a UK-based company that offers short-term, high-interest loans that are instantly transferred online.
The company recently set up a Canadian website, promoting itself as a service uniquely suited for young borrowers who want flexibility and speed.
“You decide how much you borrow and for how long. You only pay for the days you have the cash,” Wonga’s advertising says.
This week Wonga Canada distributed the results of a survey it commissioned that purported to reveal that a quarter of young Albertans are living paycheque to paycheque.
The survey also found that 35 per cent of respondents think the ideal means of getting a loan is online or through their smart phone and that 55 per cent think the loan application process should take less than 15 minutes.
A $300 loan for two weeks from Wonga would cost a borrower $30 in interest.
Experts say that amounts to an annual interest rate of 240 per cent — four times higher than the limit set by Ottawa.
But Wonga Canada CEO Mark Ruddock said it's not fair to measure its interest rates annually.
'It spirals out of control very, very quickly'
“Because you’re paying by the day and because the actual interest rate per day falls per length of the loan,” he said.
Wonga loans are a quick fix, Ruddock said.
But Mark Kalinowski with the Credit Counselling Society said while such loans might not seem too expensive at first — that quickly changes.
“If they don’t have the money right now, they won't in two weeks’ time, and they're going to end up getting two, three or four of these short-term loans,” he said.
“It spirals out of control very, very quickly.”
Everybody likes easy, online access to things, but when it comes to money, people should be extra careful, Kalinowski said.
“If it’s really easy to come by, it’s probably very expensive.”
And young borrowers are more likely to get in over their heads, he said.
“I think as with most things, experience breeds a more conservative outlook. And young people are more and more likely to access the easy money because they don’t really think of the long-term implications.”