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Pay day loan from your phone launches with a 3,000% APR
Monday 1st February 2010As applications available on the ever popular iPhone multiply by the day and infiltrate every possible aspect of life, it was only going to be a matter of time before it was targeted by the controversial payday loans sector.
One payday lender called Wonga has launched the first iPhone application which lets users take out short term loans of hundreds of pounds to tide them over until pay day.
However, it is the alarming interest rates which have caught the eye of finance experts. The typical APR of Wonga stands at a toe-curling 2,689%, whilst other payday lenders can charge more than 22,000%.
Payday loan companies maintain that these APRs can be misleading, as payday loans are normally redeemed in a matter of days, rather than months. For example, if someone borrowed £100 for a week, they would be left to pay £13 of interest.
This may be the case, but payday lenders do allow borrowers to roll over their interest each month, which can end up amounting to huge sums.
Unlike illegal doorstep lenders and loan sharks, the pay day loan industry is regulated by the Office of Fair Trading (OFT), which gives consumers some protection. Despite this, consumer groups have urged caution in using these services to pad out their wallets.
Wendy Alcock, an analyst at MoneySavingExpert.com, has said: “Payday loans rarely help people get back in control. Instead, borrowers often get caught in a debt spiral.”
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