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The Dave App — the one with the friendly cartoon bear that wants to give you a low-dollar loan right from your phone — has a new way to encourage existing customers to borrow more.
It’s bad enough that Dave charges interest rates in excess of 500% — now, the app is trying to entice customers to apply for more cash advances.
A story in the L.A. Times notes that the bear in your phone who gives out fast cash is charging up to 547% for the service
Here’s how the Times broke down the fees associated with a loan from Dave:
Given that the money had to be repaid in 12 days, the $5.99 fee and $2 tip, if considered as interest, cost Goad 122% on an annual percentage rate basis — a metric that helps compare the relative cost of loans. If he tipped $6.93, the company’s average in the first quarter, it would amount to an APR of nearly 200%. If he chose a 15% tip, the total cost would rise to $35.99 with an APR of 547% — corner payday loan territory.
Here’s more on the trouble with the Dave App — and the reality that despite the fancy fintech packaging, Dave is basically a slick payday loan store with a friendly bear posing as a benevolent lender.
The whole business seems shady — and it is couched in language around “leveling the playing field” and offering easy access to credit for those most in need.
If that’s the goal, why is Dave now encouraging customers to play casino-style games in an attempt to spur more borrowing?
Speaking of Shady: Loans from Cash App
The ubiquitous Cash App has been quietly moving into the small-dollar lending business and is now reporting 1 million active loans a month.
Jason Mikula at Fintech Business Weekly reports on the Cash App credit offering and offers insight into APR and the possibility of more credit offerings by the company.
Mikula cites the quarterly report which indicates:
The product offers customers up to $600 that can be paid back in scheduled installments or as a percentage of what they receive into Cash App. This product has reached meaningful scale while also achieving strong economics: In June, there were more than 1 million monthly actives using Cash App Borrow. We have been focused on driving profitable unit economics, enabled by our discipline around risk management.
A small-dollar loan offered at a seemingly reasonable flat fee of 5% of principal certainly expands access to short-term credit.
Users already have Cash App on their phones, can have both direct deposits and peer-to-peer payments used to repay the loans, and the app is linked to bank accounts, giving the company another avenue to ensure repayment/avoid default.
However, as Mikula also notes, the APR of these short-term loans can reach into the triple digits:
While the term of the loan can be as long as a month, it’s likely many loans are for shorter durations than that — meaning, when calculated on an APR basis, they would reach triple digits. A loan repaid in one week would carry a 260% APR.
Should You Gamble with a Cartoon Bear?
Oh, boy: "offering easy access to credit for those most in need." Yeah...right...
Since you first alerted me to these sorts of apps, I've being seeing them in various places, including spammers trying to get me to follow them on Instagram with CashApp promises. Sigh...