Square’s Cash App—a peer-to-peer payments service—is currently testing short-term loans with select users. As TechCrunch reports, Cash App is offering small loans with a four-week repayment term. While the new feature is only available to 1,000 Cash App users—the company may offer a broader rollout in the future.
Here’s how it works: Cash App users may ask for a small loan of $20 to $200 within the app. TechRadar says there is instant approval and users have four weeks to pay back the loan. Cash App currently offers a flat fee of 5%—which equals a 60% APR when calculated annually.
For example, if you borrowed $200, you would owe a flat fee of $10—assuming you pay off the balance on time. If you miss the repayment deadline, though, Cash App tacks on 1.25% (non-compounding) interest every week. Once you default, you won’t qualify for another loan from Cash App.
Alternatives to Cash App
Payday loans are one costly alternative. These loans—usually up to $500—are typically due by your next payday. With fees ranging from $10 to $35 for every $100 you borrow—a two-week payday loan may have an APR of almost 400%.
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There are other online lenders—like Oportun or OppLoans, for example—which may offer quick access to small emergency loans. Oportun recently announced an “all-in” APR cap of 36%, while you may incur a triple-digit APR with OppLoans.
A less common option—payday alternative loans—may be available through federal credit unions. As NerdWallet reports, these loans may be up to $2,000 with one to twelve-month repayment terms. The maximum APR is 28% and the application fee is $20, making it a lot less expensive than a payday loan.
The bottom line
There aren’t a lot of details about Cash App’s short-term loan yet—it may be a cheaper alternative to payday loans, but may be more costly than some online lenders or payday alternative loans. Applying through the app is a convenient option—particularly if you’re already a Cash App user—but you should review the fine print before applying.
