Can a 3,000% iPhone loan ever be worth it?

There’s outrage on the streets: headlines scream about 3,000% loans and iPhones, bloggers talk of “usury in hyperdrive”.

What’s it all about? Well, to put it bluntly, Wonga.

Wonga, a short-term loans firm, has launched an application for the iPhone. This company has been around for a couple of years and lets people borrow up to £1,000 (£400 for new users) for up to 30 days.

And for people in a tight spot, it even promises to get the money into your bank account inside 15 minutes or take £10 off the cost of your loan. Wonga estimates almost 750,000 applications have been made to it in the last two years, although doesn’t yet know how many people have downloaded its new iPhone application.

Why the headlines?

The problem is the APR, or annual percentage rate. Because Wonga’s typical annual percentage rate, as stated openly on its website, is 2,689%.

Combine that with an iPhone application, which means you can apply for a loan from anywhere with a mobile phone signal, and newspaper editors have been getting excited.

Much of the coverage suggests that the idea that someone can take out their phone and get a loan at any hour of the day or night and then head to a cash point to collect the money almost immediately is frightening.

People are being exploited, say the papers. And this naughty firm is making thousands of per cent interest from this vulnerable group.

Free online debts counselling from the CCCS

Is it really a bad deal?

The problem here is the “A” in APR. Because of the nature of a short-term loan, you simply can’t take it out over a year: 30 days is the maximum Wonga offers. But the way APRs are calculated doesn’t reflect this.

A look at the cost of a loan, rather than a theoretical “annual” rate, puts things in a different light.

A £200 loan, taken out for four days, costs you £13.61 in charges and interest – £8 interest and £5.61 in charges. That’s not cheap, but it’s also not extortionate. Considering banks and credit cards charge you either one-off fees for going over your credit limit (between £12 and £40) or a set charge each day (typically £5), Wonga compares quite well.

Taxi for one

The way to think about services like this is using taxis. Let’s say you mistakenly left your rail season ticket in the office before going out for the night. It’s now 11pm and you need to get home, but a black cab, in London at least, will cost you as much as £12 for a journey of two miles.

That’s a lot, but it’s still cheaper than jumping on a train without your ticket and being charged a penalty fare of £25 (rising to £50 if you don’t pay it quickly).

Of course the sensible thing to do is to plan and make sure you have your ticket to get home, but for those stranded, the taxi is cheaper than a penalty fare.

Short-term loans should be looked at like that.

No one would suggest that you should compare the cost of taking a taxi 24 hours a day, 365 days a year, and then not take it because that would cost you more than your annual train ticket.

But that’s effectively what the headline-writers have been doing over the new Wonga iPhone application: applying an annual rate to a short-term solution.

Targeting vulnerable people

Another criticism is that this short-term loan targets vulnerable people. Lending to those who can least afford to pay the money back. It’s a concern that many have, especially as this deal is arranged and completed so quickly.

Wonga defends itself on this charge by pointing out that it rejects between eight and nine people out of every 10 that apply for a loan. It only forwards cash to those that can most afford to pay it back and only lets people borrow larger amounts after they have already used the service and paid the money back in good time.

The site is “still super-selective about who we lend to”, Wonga communications director John Moorwood told MSN Money in a telephone interview.

Of course there’s another point to make here. To use the iPhone device you need to own an iPhone. Not something many people struggling to make ends meet can say.

Fees

Wonga charges interest 1% a day – plus £5.61 arrangement fee – to people borrowing money from them. There is no penalty to paying cash back early.

The late fee is £10, with interest of 1% a day continuing to accrue. If you still don’t pay the money back fees go up again, with total fees capped at £105 for failure to pay back debts.

However, Wonga denies that it is exploiting people.

“We would basically freeze interest and fees as soon as possible on anyone who’s having difficulty repaying and engages with us to agree a sensible/reasonable repayment plan,” Moorwood told MSN Money.

“Maybe split a £235 balance over a few months for example, as long as both parties are happy.”

 

Should I use this then?

Is this service a good option? Probably not, unless you have no real alternative. Like the taxi example above, the most sensible thing to do is plan ahead in the first place.

If you have cash, savings or spare capacity on your authorised overdraft or credit card then all of these options are cheaper. If you have friends or family willing to lend a bit of cash for a few days that could also be cheaper (depending on the friends or family in question, of course).

If you don’t have any cash reserves, then I would strongly recommend you take action now rather than waiting until an unforeseen event catches you out.

However, if you do find yourself in a tight spot, and are accepted by them, Wonga is far from the worst option in the world and certainly not deserving of the tabloid ire it has seemingly provoked by creating an iPhone application for an existing service.

How to beat festive debts

Entertain the kids for less this summer

Keeping the kids entertained (and retaining your sanity at the same time…) is often a challenge at the best of times, and all the more so when money can be tight these days. But don’t worry, with a bit of imagination and planning, there are lots of ways to keep them amused without spending a fortune.

-   Avoid theme parks if you can.  While fun, they can be a very expensive way to entertain the family. However, you can make some savings by using supermarket loyalty points to get some money off your entry fee, such as Tesco or Nectar points, or checking out voucher code websites first to look for deals. Otherwise, if you visit regularly, it might be worth buying a season pass. You can currently buy a Merlin family pass for 20 per cent off online, which gets a family group of up to 5 into Thorpe Park, Alton Towers, Madame Tussauds and lots of other UK attractions, for unlimited visits for 12 months for £84.44, although there are some visit time restrictions.

-  Why not check out your local library to see what activities they are running this summer? The summer reading challenge runs each year and it’s the ideal opportunity to get your kids reading (while hopefully giving you some peace and quiet). The theme this year is ‘circus stars’.  Visit the website http://www.summerreadingchallenge.org.uk/ for more information. It’s also worth taking a look at the government’s Change4life summer campaign, an initiative to try to help mums and dads keep their kids amused during the holidays. The campaign, designed to tackle obesity and get children active, is distributing 2.6 million free resource packs to teachers of children in school years 3,4 and 5 with ideas for summer activities. Parents will also get a voucher booklet later in the holidays worth £50 for food, drink and events which is redeemable in Asda and the website’s ‘fun generator‘ also has ideas for low cost activities for children to do indoors or out.

-   It’s often not just the entry fee but the cost of food which can make a day out expensive. Plan ahead when you go out on trips and go armed with your own drinks and packed lunches. That way you can avoid having to buy overpriced food and drink at venues or kiosks. If you’re travelling by car, try to find out how much the car parking will cost too before you travel. At some venues it’s free but at others, such as National Trust properties, it can be prohibitively expensive if you’re not a member.  If you live in London, use your Oyster card or family rail card to save money on your transport.

-  Don’t dismiss local options. Many local authorities run low cost or free activities for children during the school holidays and, despite cuts to council budgets, many are still going ahead. Our council Basildon, for example, is running a ‘play rangers’ summer holiday programme in our local parks for 5-12 year olds to attend which is free, and there are other activities offered at local country parks. So it’s worth scanning your council’s website to see what’s happening.

-  Churches are often another good option. Many run low cost activities for children which will give you a break for several hours each day during the summer holidays and you don’t have to be a regular church goer to take part. If you’re near a large town or city, you might find that the museums and art galleries there are free to attend and have special activities to engage in or worksheets for your children to fill out to keep them occupied. The Tate galleries, for example, often run regular free ‘art trolley’ workshops for kids during the holidays.

- All work and no play may make Jack a dull boy, but why shouldn’t your children graft as well as play?! If your kids are in their teens, then volunteering might be another alternative to keep them busy.  Why not check out your local charities to find out if they run summer volunteering schemes or would be glad of someone to help out? Otherwise, why not get the kids to help you around the house or tidy up in the garden?

How will you be keeping the kids amused this summer? Leave a message and let me know.

What does the future hold for the Welsh housing market?

The housing and mortgage market in Wales is inline with the rest of the UK. Mortgage lending is still subdued but when compared to lending figures last year, they are holding relatively steady. Most financial institutions have imposed stricter mortgage criteria which has negatively impacted the approval rate of mortgages. Prospective home-owners applying for a first time buyer mortgage have notably been affected by the tighter mortgage controls.

Wales has a proven record of resilience in times of economic adversity although there has been a fundamental shift in the Welsh housing market. Even with mortgage lenders offering competitive mortgage products like tracker mortgages with variable mortgage rates and fixed rate mortgages, home ownership figures are on the decline.
Not only must stakeholders in the housing market rejuvenate the flow of mortgages to the market, more diverse and wide ranging solutions are needed to meet the housing needs of the Welsh population. Initiatives like the Welsh Housing Partnership are providing innovative solutions to the housing challenges Wales is currently facing. Local Authorities are analysing the potential benefits of supporting the Local Authority Mortgage Scheme, a scheme that is directed at energising the first time buyer mortgage market. Another initiative aimed at boosting the first time buyer mortgage market is the house builder/lender scheme currently under review by the Welsh Government.

Although future prospects for the mortgage and housing market is much of the same, there is still a real opportunity for growth. Mortgage lenders will no doubt continue to offer a range of mortgages. However, if tighter mortgage controls remain in place, this may still have a negative effect on the approval rate. At Principality, we will continue to watch the housing market carefully and remain committed to assisting home buyers in Wales find the right mortgage product to meet their budget.

5 tips on how to make money from your blog

Many people who write blogs today simply want to share their opinion on  something. But then there are the business-minded folks, who have found a way to  use blogs, or Web logs, to bring in a little extra cash too.

If you’re interested in taking it further — blogging for bucks, if you will —  here are five strategies that could turn your blog into a moneymaker.

1. Sell advertising. This is likely the most common means of  leveraging a blog to generate income. If yours happens to become a well-known  blog, or one that is well-received in a particular niche, it’s always possible to sell ad space on your own. For Bing
Blogs
and services such as Google’s AdSense or BlogAds, bloggers can  establish ad programs. AdSense’s — which lets you select several ads that are  consistent with the content of your blog — pays you based on how many readers  click on the ads for further information. Even better, it’s free. BlogAds, on  the other hand, hooks bloggers up with would-be advertisers and levies a  commission in return for any ad placements that result. “The nice thing, too, is  that the ads are relatively unobtrusive,” says Scott Allen, co-author of The Virtual Handshake:  Opening Doors and Closing Deals Online.

2. Help sell others’ products. Here is another click-through  opportunity. Affiliate programs enable your blog to serve as a conduit between  readers and online sites offering various goods and services. One popular choice  is Amazon.com. If, for instance, you offer book reviews or even just mention a  book in passing in your blog, an affiliate program provides a means for your  readers to click directly from your blog to Amazon to obtain further information about the book.

If they break out the checkbook or charge card, you get paid as well.

3. Solicit contributions. Not every blog-related income opportunity  involves hawking goods or services. As Blanche DuBois said in A Streetcar Named  Desire, consider relying on the kindness of strangers. Ask for contributions. If, for instance, your small-business blog supports a cause or issue in some fashion — say you repeatedly mention tax reform, health care or some other topic — you can always ask for reader support. Even if you’ve
attracted a group of regular followers who simply enjoy reading what you have to say, they may be willing to underwrite their loyalty with a little financial help. Programs such as PayPal make it easy to establish a simple on-site contribution collection button. “There are lots of worthy ’cause’ blogs that would qualify for donations from grateful members of the blog community,” says Las Vegas communications consultant Ned Barnett.

4. Market your services in your blog. Many people associate blogs exclusively with a cyberspace-based soapbox — a place to shout your opinions and little more than that. Granted, blogs are an ideal venue to share your thoughts with others, but don’t overlook their capacity to generate new business as well.
When appropriate, work in references to what you do and, in turn, what you may be able to offer any would-be client or customer who may be reading your blog. That can spread your opinion and your business moxie at the same time.”Instead of short commentaries that begin a dialogue with readers, as many blogs do, I write the equivalent of journal articles that demonstrate my abilities, strategies and perspectives on specific issues,” Barnett says. “When it resonates, it means money. Since starting this approach, I have generated three new paying clients and brought in about $10,000 on revenue — directly
attributable to specific blogs.”

5. Use a blog to deepen your existing customer relations. Nor does any marketing material inserted in blog content have to be limited to bringing in completely new business. By using a blog to regularly communicate with existing clients as well as other readers, you can take advantage of the opportunity to fully inform them about everything your business does. That may expand your readers’ understanding of the full scope of your products or services.”My blog has helped existing clients determine the range of my skills and services,” says Ted Demopoulos of Demopoulos Associates, a Durham, N.H. consulting and training concern. “One client who had only used me for training in the past was surprised at my range of expertise and is now using me for a consulting project. Another who only used me on technical projects is now considering me for a more
business-oriented project.”

Author bio: Jeff Wuorio is a veteran freelance writer and author based in southern Maine. He writes about small-business management, marketing and technology issues.

More borrowers turn to intermediaries for advice

More borrowers are seeking out advice from mortgage intermediaries for the first time, says research by Kensington.

A survey of 617 mortgage intermediaries has found that nearly one in five (18%) say over half of the clients they have seen in the past three months were talking to a mortgage adviser for the first time.

In addition, over a third of intermediaries (34%) say that between a quarter and a half of their clients in the last quarter had never been to a mortgage broker before.

Charles Morley, head of sales at Kensington, said: “It is incredibly encouraging that so many intermediaries are seeing such a large proportion of clients who have never sought the help of an adviser before.

“This shows that more borrowers are recognising the benefits of professional advice, both in terms of helping them to make the right decision, but also in accessing lenders that are able to offer intelligent lending, rather than a one-size-fits-all tick box approach.

“I would recommend that intermediaries take this information on board and use it to go out and promote their services to new customers.

“There is clearly a previously untapped appetite for mortgage advice out there and this could fuel business growth, which looks very much like a flat market in the coming months.”