6 ms·

So? The cost of money doesn't increase.

by maaku 12y ago

gadders 12y ago
So you are against all compound interest?
- maaku 12y ago
  No, although you'd be excused for thinking so -- I co-invented Freicoin afterall (http://freico.in/ http://freico.in/). I'm against nominal interest, which is the non-risk portion of the interest rate. But that is of zero relevance here. The point is that when I make a loan the interest rate is based on the risk of default, not how quickly it will be paid back. The rate shouldn't go up just because it's a short-term loan. Additionally, none of this loans are carrying enough risk to justify 5000% APR. This is pure extortion.
antr 12y ago
The cost depends on the counterparty risk, and at the same time the overall liquidity to provide that type of loan is not provided by your every day bank. I don't think that Wonga has a great reputation, I don't like their business, but they are providing a service no one else is.
- rahimnathwani 12y ago
  The other thing people miss is that the cost of things like a credit report, staff time (underwriting, admin, collections) and bank fees don't vary with the size of the loan.
- SideburnsOfDoom 12y ago
  Eh, If I offered to kick people in the head at £10 a go, I'd be "providing a service no one else is". If it's legal, ethical or something that people will pay for is a different matter.
  - antr 12y ago
    > Eh, If I offered to kick people in the head at £10 a go, I'd be "providing a service no one else is". Don't be silly. People use Wonga because people need very short term loans. Full stop. Barclays, Lloyds, HSBC, Santander, RBS, etc, do not provide that service (and they won't).
    - SideburnsOfDoom 12y ago
      Some people need crack too, but we can decide to make it illegal to provide that service if we as a society don't think that meeting it is a good idea.
      - antr 12y ago
        Thanks, I'll leave it here https://www.goodreads.com/quotes/539027-never-argue-with-stupid-people-they-will-drag-you-down https://www.goodreads.com/quotes/539027-never-argue-with-stu...
        SideburnsOfDoom 12y ago
        That's such a persuasive argument!
    - Silhouette 12y ago
      People use Wonga because people need very short term loans. I think a significant part of the criticism of Wonga and their ilk is that they advertise heavily toward a market who inherently tend not to be very good at financial management or aware of legitimate alternatives that might be available to them. In other words, it's not clear whether a lot of people who use payday loan companies do in fact need very short term loans, as opposed to for example restructuring their long-term debts into more manageable forms with the help of their bank or mortgage lender, or asking their employer if they can have some temporary arrangement to help with an unexpected short term cashflow problem, or even just basic stuff like understanding how interest rates work so they pay down high-impact debts first or clear debts at higher rates before saving at lower rates. Rather like putting the candy at children's eye height by the tills or advertising unsuitable but desirable products on children's TV, there might not strictly be anything illegal about what is going on, but it is surely systematically preying on the vulnerable.

So? The cost of money doesn't increase.

by maaku 12y ago

So? The cost of money doesn't increase.

gadders 12y ago

So you are against all compound interest?

maaku 12y ago
No, although you'd be excused for thinking so -- I co-invented Freicoin afterall (http://freico.in/ http://freico.in/). I'm against nominal interest, which is the non-risk portion of the interest rate. But that is of zero relevance here. The point is that when I make a loan the interest rate is based on the risk of default, not how quickly it will be paid back. The rate shouldn't go up just because it's a short-term loan. Additionally, none of this loans are carrying enough risk to justify 5000% APR. This is pure extortion.

antr 12y ago

The cost depends on the counterparty risk, and at the same time the overall liquidity to provide that type of loan is not provided by your every day bank. I don't think that Wonga has a great reputation, I don't like their business, but they are providing a service no one else is.

rahimnathwani 12y ago
The other thing people miss is that the cost of things like a credit report, staff time (underwriting, admin, collections) and bank fees don't vary with the size of the loan.
SideburnsOfDoom 12y ago
Eh, If I offered to kick people in the head at £10 a go, I'd be "providing a service no one else is". If it's legal, ethical or something that people will pay for is a different matter.
- antr 12y ago
  > Eh, If I offered to kick people in the head at £10 a go, I'd be "providing a service no one else is". Don't be silly. People use Wonga because people need very short term loans. Full stop. Barclays, Lloyds, HSBC, Santander, RBS, etc, do not provide that service (and they won't).
  - SideburnsOfDoom 12y ago
    Some people need crack too, but we can decide to make it illegal to provide that service if we as a society don't think that meeting it is a good idea.
    - antr 12y ago
      Thanks, I'll leave it here https://www.goodreads.com/quotes/539027-never-argue-with-stupid-people-they-will-drag-you-down https://www.goodreads.com/quotes/539027-never-argue-with-stu...
      - SideburnsOfDoom 12y ago
        That's such a persuasive argument!
  - Silhouette 12y ago
    People use Wonga because people need very short term loans. I think a significant part of the criticism of Wonga and their ilk is that they advertise heavily toward a market who inherently tend not to be very good at financial management or aware of legitimate alternatives that might be available to them. In other words, it's not clear whether a lot of people who use payday loan companies do in fact need very short term loans, as opposed to for example restructuring their long-term debts into more manageable forms with the help of their bank or mortgage lender, or asking their employer if they can have some temporary arrangement to help with an unexpected short term cashflow problem, or even just basic stuff like understanding how interest rates work so they pay down high-impact debts first or clear debts at higher rates before saving at lower rates. Rather like putting the candy at children's eye height by the tills or advertising unsuitable but desirable products on children's TV, there might not strictly be anything illegal about what is going on, but it is surely systematically preying on the vulnerable.