Payday lender Wonga is branching out once again, launching an online payment service which could conceivably rival the likes of Paypal.
The new Paylater service allows shoppers to take out a loan to fund their purchase. It’s been launched with furniture retailer Cotswold Company, and sees shoppers given the option of paying for the goods with a 7% upfront fee followed by three equal monthly installments.
So a £100 purchase would result in a £7 one-off charge, followed by three payments of £33.33.
According to news reports over the weekend the new service is still in its early stages and will be initially offered with a small number of retailers, before potentially being rolled out to bigger online shops.
Paypal meets store credit
[SPOTLIGHT]To me, it looks like the Paylater service is a way of taking traditional store credit online, merging it with a way to pay for online shopping in a similar way to Paypal.
And it spells bad news. As we have repeatedly pointed out, short-term loans are an incredibly expensive way to borrow and should only be used in real emergencies. That does not extend to buying furniture online, or whatever other retailers Wonga is likely to partner with to offer this service.
A 7% fee may not sound like much in the example above, but with bigger and repeated spends, they will soon mount up. If you don’t have the money to pay for the goods in one go, you really need to ask yourself how much you need them and whether you can’t wait a little while to save up.
And if you really do need to rely on credit, try to take advantage of a credit card with a 0% interest period. There are even credit cards aimed at borrowers with poor credit ratings that come with interest-free deals – for example, the Luma credit card will not charge any interest on purchases until February 2013.