The well-known short-term lender Wonga has become the latest entrant to the growing personal loan market with its own 6-month flexi-loan offering. Wonga has long been known for its payday loans that it offers in South Africa and a number of other countries around the world. However, it has now revolutionised its product range with a loan that allows customers to choose their own repayment terms.
How does it work?
Currently, credit facilities such as credit cards, store cards and overdrafts account for 65 percent of credit accounts and represent 14.6 percent of the total value of consumer credit in South Africa. Wonga’s new flexi-loan has been introduced to provide an alternative to credit and store card borrowing and give the consumers more flexibility about their repayment terms.
Rather than offering fixed repayment terms like the payday loan, the Wonga personal loan allows new customers to borrow up to R4000 over a period of between 4 days and 6 months. Customers that have borrowed from Wonga will be able to access up to R8000. If we take the example of the maximum loan amount over the longest repayment term, which is R4000 over 6 months, borrowers would pay back a total of R5400 comprising of 6 equal monthly payments of R900.
What are the benefits of this type of loan?
Every consumer credit product has its benefits and pitfalls. In the case of the flexi-loan, the major benefit is the fact that it lets the borrower choose a repayment period that suits them, allowing them to arrange a repayment amount they know they can afford. It also gives the borrower the ability to budget more easily as the interest is spread across multiple repayments. They can also access greater sums of money to fund expenses payday loans, overdrafts or credit card borrowing may not stretch to.
As with any type of consumer credit, flexi-loans should only be used if they are absolutely necessary. One of the common problems consumers experience with this type of instalment loan are hidden fees, such as the early repayment charges some lenders apply. However, having learned some hard lessons in the past, Wonga actually encourages early repayment to give consumers additional flexibility. However, as with any short-term loan product, you should read the terms and conditions before you apply.
Factors to consider before accessing a short-term loan
Regardless of the loan type, there are always a few factors you should consider seriously before accessing any type of short-term credit including the new flexi-loan:
- You should never access any type of consumer credit unless you really need to;
- You must be completely confident in your ability to make the repayments before you apply;
- Flexi-loans or any other type of short-term credit should not be used to help you manage existing debts.
Could a flexi-loan be the short-term finance product that meets your particular needs? What are your concerns? Please share your thoughts with our readers in the comments below.
