Representative APR 4214%

This is the headline APR offered by Wonga. If you pay this APR level, and you borrow a tenner, in a year, you will owe over £430. Which all seems good from the lenders perspective, but not from the borrowers.

Now, I have some sympathy with them. They are actualy offering short term payday loans, not year long credit. The actual rate you pay is less than this - still expensive, but not as exhorbitant as the headline rate. They are aiming to tide people over until their paycheck comes in, not provide them with a constant source of credit.

But what they intend and what people do can be different. And people do use them to borrow money long term - topping up each month, or just failing to pay the money back. Meaning that they end up in serious debt, with interest rates that they canot afford. And this is helped by Wonga, who offer incentives to keep using them - the more you use them, the more you can borrow.

But what about those people who are struggling and just need something to tide them over. Well, in some cases, the real answer is that they should spend less - not many cases, actually, but there are cases where cancelling something that is really a luxury should come first. In these cases, the availability of easy credit makes it seem like a good idea to just borrow a little to tide them over.

But for others, there should be more flexibility with some of the utility companies and others who have regular bills. To be prepared to waive immediate payment of, say, 10% of the utilities, Community Charge etc, for full payment next month would enable some people to get by at a difficult time, without having to resort to Wonga and their like. And this is a good incentive also to reduce some of these bills, so that next month they can be paid.

So often, we - individuals, the government, the banks - assume that easy credit is the answer. Most of the time, it isn't, and all it does it put off the problems for later.