Martin wrote a blog this week, Borrowing £100 at Wonga's APR costs more than the US national debt after 7 years. We invited Wonga to have its say, so here is the lender's communications director John Moorwood (pictured, right) with his response.
It's been some summer for Wonga.com. If you believe the grapevine, our customers now include Barack Obama, the Greek government and several top flight football managers.
Seriously, though, we're growing, we're high profile and we display an annual percentage rate (APR) on our website that many people can't comprehend, so we understand the pot shots and jokes that come our way.
We are happy to listen and be talked about because we want people to be aware of the option we provide and we don't shy away from the issues. We are out there, not lurking in the shadows, and we are proud of the way we operate.
If you're not familiar with Wonga, you can apply for any amount up to £400 and determine the cost of your loan by deciding how many days you need it for, up to a month.
Unlike a payday loan, we charge daily interest rather than fixed fees, so you can settle early at any time and save.
For example, borrowing £150 costs roughly £1.50 a day in interest and we deposit that cash into your bank account within minutes of approval, 24/7.
The APR problem
Let's quickly cover APR, the biggest red herring of all. It's an equation designed for comparing long term credit products and it's great for doing that, but it's simply bonkers, as Martin put it, for a Wonga loan. Unfortunately, we are obliged to quote an APR even though it can be misleading.
We do not compound interest, which the APR equation assumes and our loans are not taken for anything like a year.
Many agree it is the wrong measure for such short loans and that's why we always show a total cost of repayment. There are no hidden catches and this is the information most people want.
We have carried out much research in this area and it’s abundantly clear that APR and short term loans leave virtually everyone confused and cold.
Our customers get it. They consistently tell us the most important thing is that they can easily see what the actual loan cost will be, before they've clicked a single button or entered their name.
It's not like a budget airline, where you think you're paying one price and then, by the time it comes to check out, you've been lumbered with several other miscellaneous fees. Or exceeding your current account limit and finding out the financial impact several days after the event.
We think we provide a level of transparency and honesty that's unfortunately rare in the world of credit. We passionately believe all lenders, including the high street banks, should provide a clear, unambiguous and completely upfront cost of repayment.
No carve outs, no caveats and no exceptions. People can make much easier decisions with the simple facts at their fingertips.
What we're all about
We have designed our service for particular circumstances, where speed is of the essence and the need is strictly short term. It's much like a black cab, because it's a fast and flexible way to get from A to B at times when it's worth paying for such a service.
Just like it is normally fine – and cheaper – to get a bus or walk, our customers don't use us all the time, but we offer an occasional solution with a clear price for when it suits.
All sorts of people use us for all sorts of things. The people who use our services have bank accounts, are online and they have choices. Less than a quarter have used a payday loan and they're generally choosing Wonga instead of the banks.
It can be anything from getting a car back on the road to buying something on eBay where the savings far outweigh the cost of borrowing for a few days.
When we say we are a short term lender, we mean it. We use technology to identify people who can afford to repay their loans quickly, which the vast majority do.
We use data from many sources, like the credit bureaux, to make objective decisions and we decline many applications.
We are aware some people might apply without thinking, despite clear advice, but we make the right decisions most of the time and have zero to gain from getting it wrong.
Views expressed are not necessarily those of MoneySavingExpert.com.