Wonga: Premier personal finance player?

Wonga and St James' Park Wonga has signed a lucrative sponsorship deal with Newcastle United football club

So, just how expensive was Christmas for you?

Many of us hit the high street sales and online shopping proved a welcome alternative to left-over Christmas pudding and mince pies on Boxing Day.

But how will you pay for it all?

I've been hearing from people who are increasingly relying on so called payday loans - even though you don't actually have to wait for pay day to apply.

In the North East, a region with some of the highest levels of personal debt, Wonga will soon be the name splashed over the shirts of some of the region's biggest earners - Newcastle United players.

Premier player

Wonga, headquartered just round the corner from London Zoo, is to become the Toon's latest sponsor putting up a reported £32 million to back the black and white army.

Depending on your point of view, Wonga is either an innovative player in the world of personal finance - or should be shown a red card for wooing people who have little chance of meeting repayments into loans with cripplingly high interest rates.

The deal with Wonga has provoked anger from some politicians and Newcastle fans

As I've discovered, part of Wonga's success is to make the process of applying for money very easy.

Their advert shows a bunch of silver surfer puppets demonstrating just how straightforward it is to apply for a loan - with money in the bank in less time than it takes to cook your tea.

According to Wonga around a million people in the UK have taken up the offer.

The company says most of its customers are single, childless and under 35.

It also says that the average loan is made for just 16 days and that most people pay off the loan without any difficulty - and are charged 1% interest a day.

An official study in 2010 said pay day loans provided a legitimate, useful service that helped cover a gap in the market.

But that's not the experience of everyone.

Risky borrowing?

For some of the people in tonight's BBC Inside Out film the attraction of the loan has proved too much to resist.

Pamela Smith from North Tyneside admits she has a terrible credit rating - with debts of around £40,000 - but she was still able to get a loan of £300 from Wonga.

Dame Tanni Grey Thompson Dame Tanni Grey Thompson helped persuade the government to change the law on interest charges

She has no chance of paying it back.

Wonga says it has created a computer programme, called an "automatic risk decision engine", which collates data from lots of sources about applicants before deciding on whether to sanction a loan.

About two thirds of people are rejected.

But critics say too many people like Pamela are sucked into the chance of what looks like easy money.

They also argue that interest on loans is an astonishing 4,000% when calculated as an annual percentage rate.

Just before Christmas two leading figures from the region, the Bishop of Durham (and Archbishop of Canterbury-to-be), Justin Welby and Paralympic superstar, Dame Tanni Grey Thompson helped persuade the government to change the law.

This gave the new financial watchdog, the Financial Conduct Authority, the power to limit interest charges.

But will that be enough?

Money management

The new watchdog will not impose automatic limits - and will deal with companies on a case by case basis.

Campaigners also want to see people given more education about how to manage money which might help flag up the pitfalls of what at first sight seems like a straight forward way to get yourself some fast cash.

Wonga online loan form Wonga says that its deal with Newcastle United is about raising brand awareness

And what about the Wonga deal in Newcastle?

Well, Wonga's John Moorwood told me that the deal with Newcastle United isn't about winning more customers in an area of Britain with high levels of deprivation.

"This deal is about raising brand awareness.

"If we wanted to target the North East there are a lot cheaper ways of doing that - this isn't about selling loans to anyone.

"This is about developing a long term partnership with the club and community."

Have you taken out a short term loan? Let me know your thoughts by commenting below.

Chris Jackson Article written by Chris Jackson Chris Jackson Presenter, Inside Out, North East & Cumbria

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  • rate this

    Comment number 4.

    My story is a little more sinister and annoying as I have never applied for a PayDay type loan but I am still trying to clear my credit rating 2 years later since someone else decided to take out these loans using my name and address.
    The current company I am dealing with is a debt collection agency who has bought one of the debts and insists it is mine. They won't take me to court though

  • rate this

    Comment number 3.

    Is the video you showed on tonight show of 100 peoples 2012 available online anywhere??

  • rate this

    Comment number 2.

    Is Wonga breaking the law? No....so what was the point of that?
    Where as the CAB have broke the law against me! They promised to represent me at an Employment Tribunal. They didn't!
    So just because I fought for justice, there solicitors are claiming over £65,000 off me. I done nothing wrong but somehow have to pay that amount of money! I think that is more of a story than Wonga!!!!

  • rate this

    Comment number 1.

    I have used wonga 3 times, I have had no problem at all, I only take out a loan if I know I can pay it back on time so I will not incur additional charges. I think all this negativity about wonga is because people cannot pay back on time, they should take more care. I will be using wonga again.



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