Wonga, the company most famous for its catchy advertisements and short-term or payday loans, will be expanding its range of financial services it has been announced. Joining the loans already available will be a new personal loan that’s available with instalment repayments, for those unfamiliar with the difference we’ll break it down for you.
A personal loan is similar to a payday loan in that both are unsecured, meaning that collateral such as property or vehicles aren’t required as assets, however the difference takes form in the amount of money that can be borrowed and in the repayment period. Personal loans are also known as instalment loans and the clue is in the name. Anyone who takes out a personal loan (in the case of Wonga up to R400,) will repay their loan in equal instalments over a period of 2 to 6 months.
So now you know what personal loans are, we can talk about how they work. Personal loans operate in a more affordable way than payday loans as you pay in much smaller chunks over a longer timescale. For example if you took out a payday loan of R4000 over 30 days, you’d end up paying back R4735 including interest and fees in one lump sum. This could seem like a challenge to most people, especially if you’re in a low-income job.
However, if you were to take out the same amount as a personal loan your repayments would amount to R900 over 6 months. Though the total cost would be slightly higher at R5400, the affordable monthly payments would be much easier to manage, making personal loans an excellent option for those who need more time to pay back loans.
This new Wonga service is an excellent alternative as it offers consumers what they really need, a quick sum of money, plenty of time to pay it back in and convenient and manageable repayments. It can also be compared to other banks offering a similar service with a repayment period of 12 months where customers would end up repaying a total of R6260 for taking out the same R400 as a Wonga loan to begin with.
The fact that you also don’t have to pay your loan back over 6 months and can choose between 2 and 6 means a greater customer-based approach so loans can be worked around what your budget allows. While personal loans or payday loans shouldn’t be seen as a long-term financial solution and should only be taken on if full-repayment in the chosen timeframe is a feasible option, Wonga’s diverse solutions offer helpful fixes when they’re needed most.